Exhibit 1
SUPERCOM LTD
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2024
(Unaudited)
SUPERCOM LTD
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2024
(Unaudited)
IN U.S. DOLLARS
INDEX
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2
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
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June 30,
2024
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December 31,
2023
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Unaudited
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Audited
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CURRENT ASSETS
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Cash and cash equivalents
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Restricted bank deposits
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Trade receivable, net
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Other accounts receivable and prepaid expenses
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Inventories, net (Note 3)
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Patents
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Total current assets
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LONG-TERM ASSETS
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Severance pay funds
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Deferred tax long term
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Property and equipment, net
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Other Intangible assets, net (Note 4)
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Goodwill
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Operating lease right-of-use asset
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Total non-current assets
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TOTAL ASSETS
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CURRENT LIABILITIES
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Trade payables
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Employees and payroll accruals
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Related parties
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Accrued expenses and other liabilities
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Deferred revenue
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Short-term loan and other
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Total current liabilities
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LONG-TERM LIABILITIES
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Long-term loan
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Deferred revenue
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Deferred tax liability LT
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Accrued severance pay
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Operating lease liabilities
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Total non-current liabilities
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SHAREHOLDERS' EQUITY:
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Ordinary shares
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Additional paid-in capital
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Accumulated deficit
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Total shareholders' equity
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Total Liabilities and Shareholders' Equity
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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)
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Six months ended June 30
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2024
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2023
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Unaudited
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Unaudited
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REVENUES
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COST OF REVENUES
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GROSS PROFIT
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OPERATING EXPENSES
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Research and development, net
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Sales and marketing
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General and administration
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Total operating expenses
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OPERATING (LOSS) INCOME
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FINANCIAL EXPENSES (INCOME), NET
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LOSS BEFORE INCOME TAX
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INCOME TAX BENEFIT
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NET LOSS FOR THE PERIOD
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NET LOSS PER SHARE
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Basic
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Diluted
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Weighted average number of ordinary shares used in computing basic net loss per share
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Weighted average number of ordinary shares used in computing diluted net loss per share
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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)
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Ordinary shares
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Number of
Shares
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Share
capital
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Additional paid-in
capital
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Accumulated
deficit
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Total shareholders'
equity
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Balance as of December 31, 2022
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(
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Changes during the six months ended June 30, 2023 (unaudited):
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Net loss
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-
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(
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Exercise of options and debt conversion
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Share Issuance
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Balance as of June 30, 2023 (unaudited)
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Balance as of December 31, 2023
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Changes during the six months ended June 30, 2023 (unaudited):
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Net loss
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-
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Exercise of options and debt conversion
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Share Issuance
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Balance as of June 30, 2024 (unaudited):
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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 | ||||||||
| 2024 | 2023 | |||||||
| Unaudited | Unaudited | |||||||
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Cash flows from operating activities:
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| Net loss | ( |
) | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
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Depreciation and amortization
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Increase in trade receivables, net
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(
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(
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Increase in other accounts receivable and prepaid expenses
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(
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Increase (decrease) in inventories, net
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Increase(decrease) in trade payables
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Decrease (increase) in deferred tax |
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Increase (Decrease) in employees and payroll accruals
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Increase (decrease) in accrued severance pay
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Increase(decrease) in long-term loan and other debt
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Increase (decrease) in accrued expenses and other liabilities
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Net cash used in operating activities
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Cash flows from investing activities:
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Purchase of property and equipment
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Decrease (Increase) in severance pay fund
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Capitalization of software development costs
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Net cash provided by (used in) investing activities
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Cash flows from financing activities:
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Issuance of share capital, net of issuance costs
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Long-term debt, net
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Related parties
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Net cash provided by (used in) financing activities
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Increase (decrease) in cash, cash equivalents and restricted cash
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Cash, cash equivalents and restricted cash at the beginning of the year
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Cash, cash equivalents and restricted cash at the end of the period
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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 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.
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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 provides an all-in-one field-proven PureSecurity suite, accompanied by 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 as well as its legacy backhaul services and products; (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
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The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past 3 years. As of six months ended June 30, 2024, the Company had an accumulated deficit of $103,985 and net cash used in operating activities of $949 , compared to $3,409 for six months ended June 30, 2023.
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, 2024, the Company had cash, cash equivalent, and restricted cash of $6,096 and positive working capital of $26,095
Additionally, the Company secured financing of $20,000 during 2018, of which $6,000 12,000 of subordinated debt.
On March 1, 2022, the Company raised $4.65 million in a registered direct offering with a single accredited institutional investor of an aggregate of 156,500 of its ordinary shares, and 220,079 pre-funded warrants to purchase ordinary shares with an exercise price of $0.00020 per share, and concurrent private placement to the Purchaser of the Company’s private warrants to purchase an aggregate of 282,434 or ordinary shares at an exercise price of $14.00 per share.
On July 27, 2022, the Company raised $1.74 million in a cash exercise of Company’s private warrants, as amended, of 282,434 of its ordinary shares at exercise price of $6.16 , and concurrent private placement to the accredited institutional investor of the Company’s private warrants to purchase an aggregate of 282,434 or ordinary shares at an exercise price of $6.4 per share.
On March 31, 2023, the Company raised $2.4 million in a registered direct offering with a single accredited institutional investor through the sale of an aggregate of 24,250 of its ordinary shares, and 51,631 pre-funded warrants to purchase ordinary shares with an exercise price of $0.0002 per share, and concurrent private placement to such Purchaser of the Company’s private warrants to purchase an aggregate of 75,881 of its ordinary shares at an exercise price of $33.2 per share.
On August 3, 2023, the Company raised $2.75 million in a registered offering with a single accredited institutional investor through the sale of an aggregate of 33,050 of its ordinary shares, and 128,715 pre-funded warrants to purchase ordinary shares with an exercise price of $0.0002 per share, and concurrent issuance to such Purchaser of the Company’s warrants to purchase an aggregate of 161,765 of its ordinary shares at an exercise price of $17 per share.
On November 15, 2023, the Company raised approximately $2.0 million in gross proceeds in a warrant exercise and reload with a single accredited institutional investor through warrant exercise of 54,050 warrant to ordinary shares, and warrant exercise of 183,596 warrant to pre-funded warrants to purchase ordinary shares with an exercise price of $0.0002 per share, and concurrent warrant reload to such Purchaser of the Company’s private warrants to purchase an aggregate of 475,291 of its ordinary shares at an exercise price of $10 per share.
On April 19, 2024, the Company raised approximately $2.9 million in gross proceeds in a registered direct offering with a single accredited institutional investor through the sale of an aggregate of 143,694 of its ordinary shares, and 262,114 pre-funded warrants to purchase ordinary shares with an exercise price of $0.0002 per share, and concurrent private placement to such Purchaser of the Company’s private warrants to purchase an aggregate of 450,808 of its ordinary shares at an exercise price of $7.6 per share
To date, the Company has used the proceeds from the secured financing, subordinated debt, and private placement (i) to satisfy certain indebtedness; and (ii) for general corporate purposes, and (iii) for working capital needs for multiple new government customer contracts with significant positive cash flow.
Furthermore, the available $6 million secured credit facility from Fortress Investment Group may provide the Company with additional access to capital if needed.
The Company believes that based on the above-mentioned secured financings, management’s plans, significant cost savings, and expected cash streams from the Company’s current contracts with customers worldwide, it will be able to fund its operations for at least the next 12 months.
7
NOTE 1: GENERAL (Cont.)
| c. |
Senior Secured Credit Facility
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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 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 2.50 x; 7.0 % for an EBITDA Leverage Ratio less than 2.50 x). 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. The majority of the principal to be paid via a bullet payment at the maturity date, which the company expects to be amended to December 2028.
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 1,250 warrants initially and an additional 3,750 warrants for amendments (the “Credit Facility Warrants”) and purchased 5,335 unregistered common shares at a share price of $37.4 from the Company at a total of $200 . The Credit Facility Warrants mature 7 years from the date of issuance, were set to be issued at a strike price at a premium to the then current market price.
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 2024, 2023, 2022 and 2021 the Company converted $ 5,535 , $500 , $211 and $7,601 , respectively, of the remaining principal and accrued interest of subordinated notes into the Company’s ordinary shares.
As of June 30, 2024, the outstanding principal, including accrued interest, of the Credit Facility and the aggregate balance for these Subordinated Debt was $29,181 .
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.
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, 2024 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, 2023.
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, 2023, and the accompanying notes. There have been no changes in the significant accounting policies from those disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2023 included in the 2023 Form 20-F/A.
NOTE 3: INVENTORIES, NET
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June 30,
2024
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December 31,
2023
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$
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$
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Raw materials, parts and supplies
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Finished products
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As of June 30, 2024 and December 31, 2023, inventory is presented net of write-offs for slow inventory in the amount of approximately $2,227 and $2,215 , respectively.
NOTE 4: OTHER INTANGIBLE ASSETS, NET
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June 30,
2024
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December 31,
2023
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Customer relationship & Other
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IP & Technology
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Capitalized software development costs
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NOTE 5: COMMITMENTS AND CONTINGENT LIABILITIES – LITIGIATION
We are party to legal proceedings in the normal course of our business. There are no material pending legal proceedings to which we are a party or of which our property is subject. Although the outcome of claims and lawsuits against us cannot be accurately predicted, we do not believe that any of the claims and lawsuits, will have a material adverse effect on our business, financial condition, results of operations or cash flows for any quarterly or annual period.
9