EX-99.1 2 v036374_ex99-1.htm
 
Exhibit 99.1
 

 
Supercom Announces Fourth Quarter and Full Year 2005 results
2005 Revenue Grew 15% Year-over-Year
Expects 2006 Revenue Growth of Approximately 20% and Break-Even by Year End


Qadima, Israel, February 23, 2006 – SuperCom Ltd. (OTCBB: SPCBF.OB; Euronext: SUP), a leading provider of smart card and electronic identification (e-ID) solutions, today announced its fourth quarter and full year 2005 results.

Revenues for the year were $8.5 million, representing growth of 15% over revenues of US$7.3 million as reported for 2004. Gross profit for 2005 was US$3.9 million compared with $3.6 million for 2004. Pro-forma gross profit for the year reached $4.2m representing gross margin of 49.3% compared with $3.6m or gross margins of 49.2% in 2004.

Operating loss for 2005 was $3.9 million compared to a loss of $1.6 million in 2004. Pro-forma operating loss for 2005 was $3 million. Net loss for the year was $4.0 million, or ($0.21) per diluted share compared with $1.9 million, or ($0.13) per diluted share for 2004. Pro-forma net loss for 2005 was $3.0 million, or ($0.16) per diluted share.

Fourth quarter revenues were $1.6 million, 53% below last year’s fourth quarter revenue of $3.5 million and 22% below previous quarter revenue. The reason for the drop in revenues was due to shifts in timing of revenue recognition from projects between quarters, which had already been anticipated by the Company and was included in the guidance issued.

Fourth quarter net loss was $966 thousand, or $(0.05) per diluted share compared with a net income of $451 thousand, or $0.02 per diluted for the quarter of 2004. Pro-forma net loss for the quarter was $679 thousand, or ($0.03) per diluted share.

During 2005, the company generated three one-time expenses. These include restructuring expenses of $496 thousand, litigation settlement expenses of $129 thousand and an inventory write-off of $287 thousand in the fourth quarter. Pro-forma figures exclude these one-time expenses. A full pro-forma statement of operation that excludes the effect of these expenses has been provided, for analysis purposes, in this press release.

The company had cash, short term deposits and marketable securities totaling $4 million at the end of 2005. Operating cash flow in the fourth quarter was negative $196 thousands; a significant decrease compared with the third quarter’s operating cash flow of negative $804 thousands. This reduction was achieved partially due to the cost reduction plan that was completed during the third quarter.

Recent Developments:

·  
The award of a tender to provide the technology for a biometric passport issuing and control system for a country in Western Europe. The implementation of the project is expected to start during first quarter of 2006.
·  
The introduction of a new technology and solution for active tracking of people and assets, and the establishment of a new subsidiary, which will focus on this growing market. The new technology expands Supercom's Homeland Security offerings through a Wireless Asset Tracking System for strategic and high value items.
·  
The joining of R. James Woolsey, former Director of Central Intelligence and one of America's preeminent authorities on security issues, to the newly created Advisory Board as Chairman.
·  
The award by Green Science International Ltd., a distributor of health products in Hong Kong, China and Asia Pacific, to customize its e-Living Contactless Smart Card System and integrate it into Green Science's Retailer CRM (Customer Relationship Management) Membership and Loyalty solution.
·  
The completion of a $3.0 million private equity financing to US institutional and private investors. This investment was led by Special Situation Funds, a leading micro-cap investment group which invested $2.5 million to become the Company's largest investor.

Avi Schechter, CEO of Supercom, said, “Although 2005 was a challenging year for us, mainly due to the effort and expenses that we put into the GPO project that did not bring the expected results for reasons beyond our control, we were able to grow our sales by 15%. This is a testimony for the strength of our products and our presence in both governmental and commercial markets.”

Mr. Schechter continued, “Looking forward, we are entering 2006 with a solid backlog and significant growing demand for our products and services in new and existing markets, lower expenses and a strong balance sheet. The good signs that we get from new and existing clients provide us with a good visibility going forward into 2006.”

Mr. Eyal Tuchman, CFO of Supercom added, “Our forecast for 2006 is for revenues to be in the range of $10.0-10.8 millions, with the majority of the growth expected to come in the second half of the year. Thanks to the cost cutting done in 2005 and the anticipated increase in our revenues, we believe that we will reach breakeven towards the end of 2006.”

Conference Call
The Company will host a conference call today at 11:00am EST. On the call, management will review and discuss the results and will be available to answer investor questions.

The call can be accessed by dialing:
US Dial-in Number: 1 866 744 5399
UK Dial-in Number: 0 800 917 4613
ISRAEL Dial-in Number: 03 918 0609
INTERNATIONAL Dial-in Number: +972 3 918 0609

For those unable to listen to the live call, a replay of the call will be available for three months from the day after the call in the investor relations section of Supercom’s website, at: www.supercomgroup.com. In addition, there will be a telephone replay available for two days following the call. The replay numbers are: 1 866 276 1002 (US); 0 800 169 8104 (UK) and +972 3 925 5925 (International).
 
 
About SuperCom
SuperCom, Ltd. provides innovative solutions in smart-card and e-ID technologies to the commercial and government sectors.  The Company offers a wide range of standard and customized smart-card-based solutions for physical and logical security, education, corrections facilities and air & seaports.  It is also a leader in the manufacturing of secure and durable documents such as national identity cards, passports, visas, drivers’ licenses and vehicle registration to improve homeland security, governmental efficiency and document ease of use. Headquartered in Israel, SuperCom has subsidiaries in the US and Hong Kong.  For more information, visit our website at www.supercomgroup.com.
 
Safe Harbor
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded or followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may” and “could” are generally forward-looking in nature and not historical facts. For example, Mr. Schecter’s and Mr. Tuchman’s statements regarding our strategic reorganization plan and our statements as to guidance for 2006 are forward-looking statements. Forward-looking statements in this release also include statements about business and economic trends.
 
You should consider the areas of risk described under the heading “Forward Looking Statements” and those factors captioned as “Risk Factors” in our periodic reports under the Securities Exchange Act of 1934, as amended, or in connection with any forward-looking statements that may be made by us and our businesses generally,

All information in this release is as of February 23, 2006. Except for our ongoing obligation to disclose material information under the federal securities laws, the Company undertakes no duty to update any forward-looking statement to reflect subsequent events, actual results or changes in the Company's expectations. The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by the investment community.
 
This press release and other releases are available on www.supercomgroup.com.
 
Investor Relations Contacts:
Ehud Helft / Kenny Green
Ehud.Helft@gkir.com / kenny.green@gkir.com
GK Investor Relations
1 866 704 6710
Company Contact:
Eyal Tuchman, CFO
eyalt@supercomgroup.com
SuperCom, Ltd.
+972 9 889 0805


 
FINANCIAL TABLES FOLLOW


FOR IMMEDIATE RELEASE
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands


   
December 31,
  
December 31,
  
   
2004
  
2005
  
   
Unaudited
  
Unaudited
  
ASSETS
          
           
CURRENT ASSETS:
          
Cash and cash equivalents
  
$
2,894
  
$
2,294
  
Short-term deposit
    
1,482
    
1,088
  
Marketable securities
    
-
    
650
  
Trade receivables
   
1,463
    
1,053
  
Other accounts receivable and prepaid expenses
    
1,250
    
733
  
Inventories
    
2,165
    
2,205
  
               
Total current assets
    
9,254
    
8,023
  
               
LONG-TERM INVESTMENTS:
              
Long term trade receivables
    
247
    
209
  
Investment in an affiliated company
    
275
    
275
  
Severance pay fund
   
428
    
492
  
               
Total long-term investments
    
950
    
976
  
               
PROPERTY AND EQUIPMENT, NET
   
3,641
    
3,210
  
               
INTANGIBLE ASSETS
    
93
    
67
  
               
TOTAL ASSETS
  
$
13,938
  
$
12,276
  


CONSOLIDATED BALANCE SHEETS 
U.S. dollars in thousands


   
December 31,
  
December 31,
  
   
2004
  
2005
  
   
Unaudited
  
Unaudited
  
           
LIABILITIES AND SHAREHOLDERS' EQUITY
          
           
CURRENT LIABILITIES:
          
Short-term bank credit and current maturities of long-term loan
  
$
1,022
  
$
855
  
Trade payables
    
1,135
    
770
  
Employees and payroll accruals
    
357
    
322
  
Accrued expenses and other liabilities
   
1,745
    
1,271
  
               
Total current liabilities
    
4,259
    
3,218
  
               
LONG-TERM LIABILITIES:
              
Long-term loan, net of current maturities
   
-
    
195
  
Accrued severance pay
    
564
    
616
  
               
Total long-term liabilities
    
564
    
811
  
               
               
Shareholders' equity
    
9,115
    
8,247
  
               
TOTAL LIABILITY AND SHAREHOLDERS’ EQUITY
  
$
13,938
  
$
12,276
  

 
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share data)
 
 
 
Year ended
December 31,
        
Three months ended
December 31,
 
    
2004
          
2005
          
2004
        
2005
 
   
 Unaudited
  
                                
 
Revenues
  
$
7,344
        
$
8,462
        
$
3,453
       $
 1,605
Cost of revenues
    
3,730
          
4,293
          
1,369
        
725
Inventory write-off
    
-
          
287
          
-
        
287
                                         
Gross profit
   
3,614
          
3,882
          
2,084
        
593
                                         
Operating expenses:
                                        
Research and development
    
845
          
1,182
          
227
        
224
Selling and marketing
    
2,445
          
3,003
          
730
        
553
General and administrative
    
1,955
          
2,968
          
572
        
739
Restructuring expenses
    
-
          
496
          
-
        
-
Litigation settlement expenses
    
-
          
129
          
-
        
-
                                         
Total operating expenses
    
5,245
          
7,778
          
1,529
        
1,516
                                         
Operating income (loss)
    
(1,631
)
        
(3,896
)
        
555
        
(923)
Financial expenses, net
    
(214
)
        
(25
)
        
(97
)
      
(19)
Other expenses, net
    
(27
)
        
(30
)
        
(7
)
      
(24)
                                         
Net Income (loss)
  
$
(1,872
)
      
$
(3,951
)
      
$
451
       $ 
(966)
                                         
                                         
Basic net income (loss) per share
  
$
(0.13
)
      
$
(0.21
)
      
$
0.03
       $ 
(0.05)
Diluted net income (loss) per share
  
$
(0.13
)
      
$
(0.21
)
      
$
0.02
       $ 
(0.05)
                                         
Weighted average number of
Ordinary shares used in
computing basic net income
(loss) per share
    
14,590,346
          
18,563,943
          
17,114,044
        
19,370,871
Weighted average number of
Ordinary shares used in
computing diluted net income
(loss) per share
    
14,590,346
          
18,563,943
          
20,356,003
        
19,370,871


* PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share data)
 
 
 
Year ended
December 31,
        
Three months ended
December 31,
 
    
2004
          
2005
          
2004
        
2005
 
   
 Unaudited
  
 
 
Revenues
    
7,344
          
8,462
          
3,453
        
1,605
Cost of revenues
    
3,730
          
4,293
          
1,369
        
725
                                         
Gross profit
   
3,614
          
4,169
          
2,084
        
880
                                         
Operating expenses:
                                        
Research and development
    
845
          
1,182
          
227
        
224
Selling and marketing
    
2,445
          
3,003
          
730
        
553
General and administrative
    
1,955
          
2,968
          
572
        
739
                                         
Total operating expenses
    
5,245
          
7,153
          
1,529
        
1,516
                                         
Operating income (loss)
    
(1,631
)
        
(2,984
)
        
555
        
(636)
Financial expenses, net
    
(214
)
        
(25
)
        
(97
)
      
(19)
Other expenses, net
    
(27
)
        
(30
)
        
(7
)
      
(24)
                                         
Net income (loss)
    
(1,872
)
        
(3,039
)
        
451
        
(679)
                                         
                                         
Basic net income (loss) per share
  
$
(0.13
)
      
$
(0.16
)
      
$
0.03
       $
 (0.03)
Diluted net income (loss) per share
  
$
(0.13
)
      
$
(0.16
)
      
$
0.02
       $
 (0.03)
                                         
Weighted average number of
Ordinary shares used in
computing basic net income
(loss) per share
    
14,590,346
          
18,563,943
          
17,114,044
        
19,370,871
Weighted average number of
Ordinary shares used in
computing diluted net income
(loss) per share
    
14,590,346
          
18,563,943
          
20,356,003
        
19,370,871
 
 
The Pro-Forma Consolidated Statements of Operations for the year ended December 31, 2005 exclude restructuring expenses, litigation settlement expenses and inventory write-off totaling $496,000, $129,000 and $287,000 respectively and for the three-month period ended December 31, 2005 exclude inventory write-off totaling $287,000.
 
To supplement our condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (GAAP), the Company is providing an additional measure of operating results excluding certain expenses. The above Pro-Forma information is for informational purposes only. The Company believes that this non-GAAP financial measure is useful to investors because of the, non-recurring nature of the expenses. It is not prepared in accordance with Generally Accepted Accounting Principles in the United States (US GAAP) and should not be considered as a substitute for our historical financial information prepared in accordance with GAAP.
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
 
   
Year ended
December 31,
  
Three months ended
December 31,
  
   
2004
  
2005
  
2004
  
2005
  
   
Unaudited
  
Cash flows from operating activities:
                  
Net Income (loss)
  
$
(1,872
)
$
(3,951
)
$
451
  
$
(966
)
Adjustments to reconcile net loss to net cash used in
operating activities:
                          
Depreciation and amortization
    
338
    
772
    
80
    
16
  
Accrued severance pay, net
   
33
    
(12
)
  
19
    
(1
)
Amortization of deferred stock compensation
    
9
    
55
    
2
    
12
  
Decline in market value below cost of
marketable debt securities
    
7
    
-
    
-
    
-
  
Decrease (increase) in trade receivables
    
(398
)
  
448
    
(221
)
  
118
  
Decrease (increase) in other accounts receivable
and prepaid expenses
    
(403
)
  
517
    
(346
)
  
83
  
Decrease (increase) in inventories
    
814
    
(40
)
  
538
    
192
  
Increase (decrease) in trade payables
    
(31
)
  
(365
)
  
321
    
144
  
Increase (decrease) in employees and
payroll accruals
    
51
    
(35
)
  
50
    
20
  
Increase (decrease) in accrued expenses and
other liabilities
    
747
    
(407
)
  
494
    
186
  
Others
    
1
    
-
    
1
    
-
  
                           
Net cash used in operating activities
    
(704
)
  
(3,018
)
  
1,389
    
(196
)
                           
Cash flows from investing activities:
                          
Purchase of property and equipment
    
(1,088
)
  
(315
)
  
(756
)
  
(40
)
Proceeds from sale of property and equipment
    
1
    
-
    
1
    
-
  
Acquisition of intangible assets
    
(37
)
  
-
    
(9
)
  
-
  
Proceeds (Investment) in short-term deposits, net
    
578
    
394
    
(77
)
  
(14
)
Investment in marketable Securities, net
    
-
    
(650
)
  
-
    
(650
)
Proceeds from redemption of marketable debt
securities
    
110
    
-
    
-
    
-
  
                           
Net cash provided by (used in) investing activities
    
(436
)
  
(571
)
  
(841
)
  
(704
)
                           
Cash flows from financing activities:
                          
Short-term bank credit, net
    
(1,122
)
  
120
    
(619
)
  
139
  
Proceeds from long-term loan
    
400
    
500
    
-
    
-
  
Issuance expenses related to conversion of loan
into shares
    
-
    
-
    
-
    
-
  
Proceed from private placement, net
    
3,507
    
2,742
    
741
    
2,742
  
Issuance of shares
    
10
    
10
    
2
    
10
  
Principle payment of long-term loan
    
(574
)
  
(592
)
  
(152
)
  
(107
)
Proceed from exercise of warrant and options, net
    
84
    
209
    
-
    
-
  
                           
Net cash provided by (used in) financing activities
    
2,305
    
2,989
    
(28
)
  
2,784
  
                           
Increase (decrease) in cash and cash equivalents
    
1,165
    
(600
)
  
520
    
1,884
  
Cash and cash equivalents at the beginning of
the period
    
1,729
    
2,894
    
2,374
    
410
  
                           
Cash and cash equivalents at the end of the period
  
$
2,894
  
$
2,294
  
$
2,894
  
$
2,294
  
                           
Supplemental disclosure of cash flows information:
                          
Cash paid during the period for:
                          
Interest
  
$
128
  
$
87
  
$
27
  
$
20
  
Supplemental disclosure of non-cash investing activities:
                          
Transfer of inventory to property and equipment
  
$
1,117
  
$
-
  
$
1,047
  
$
-
  
Transfer of trade receivable to inventory
  
$
860
  
$
-
  
$
860
  
$
-
  
Conversion of loan to ordinary shares
  
$
25
  
$
-
  
$
-
  
$
-
  
Other accounts receivable on issuance of shares
  
$
-
  
$
-
  
$
-
  
$
-
  
Accrued expenses related to issuance of shares
 
$
176
  
$
109
  
$
176
  
$
109