Core Insights - SuperCom achieved a 5-year record performance in 2023 with revenues of $26.6 million, a 51% year-over-year increase, and EBITDA of $4.8 million, reflecting a 2350% increase over the prior period [5][6] - The company is focused on expanding its market share in the electronic monitoring of offenders, which is projected to reach a market size of $2.3 billion by 2028 [11] - SuperCom's innovative technology, including the PureProtect and PureOne products, positions the company as a leader in the public safety sector, enhancing its competitive edge [10][14] Financial Performance - SuperCom reported a gross profit of $10.2 million in 2023, a 60% increase year-over-year, driven by strong performance in Q4 [6] - The company secured a new electronic monitoring contract worth approximately $2 million in California and received new orders from European governments valued at $5 million [7][8] - The company’s contract win rate exceeds 65% in National Government Tenders in Europe, indicating strong demand for its solutions [18] Market Position and Strategy - SuperCom has established a significant presence in the public safety sector, with a focus on government and private sector clients [3][12] - The company has invested over $40 million in R&D since 2014, resulting in over 100 patents, showcasing its commitment to innovation [17] - SuperCom aims to revolutionize government sectors through superior technology and solutions, enhancing rehabilitation outcomes and community safety [19][20] Product Development - The company launched two new products, PureProtect for domestic violence monitoring and PureOne ankle-bracelet monitoring solution, which are expected to expand its addressable market [10] - SuperCom's technology offers advantages such as longer battery life and more accurate location tracking compared to competitors [14] Industry Context - The electronic monitoring industry is seen as a cost-effective alternative to incarceration, with potential to improve rehabilitation outcomes and reduce recidivism rates [15][12] - The company’s solutions are designed to support vulnerable populations, including victims of domestic violence, through real-time monitoring and secure communication [16]

Financial Data and Key Metrics Changes - Gross profit increased by 139% to $3.8 million compared to $1.6 million, reflecting progress across projects and enhanced margins as projects mature [1] - Operating income improved by $1.8 million from $700,000 compared to an operating loss of $1.8 million before, resulting in a significant increase in gross profit [2] - EBITDA improved by 400% to $2 million compared to $400,000, reflecting benefits of operating leverage associated with high revenues [30] - Net income improved by $2.3 million from a net loss of $1.5 million last quarter to a net profit of $800,000 this quarter [30] - Non-GAAP net profit improved by $1.6 million to $1.5 million compared to a loss of $250,000 in the prior year [50] Business Line Data and Key Metrics Changes - The company has seen fluctuations in gross margins due to the mix of project stages, with later stages yielding higher margins [6] - The introduction of new products like PureProtect and PureOne has significantly expanded the company's addressable market and improved competitive positioning [34][36] Market Data and Key Metrics Changes - The electronic monitoring market is projected to reach $2.3 billion by 2028, with the U.S. and Europe constituting about 95% of these markets [21] - The company has achieved over a 65% win rate in Europe, indicating strong competitive performance [9][36] Company Strategy and Development Direction - The strategic blueprint focuses on leading with innovative technology, developing superior solutions, expanding global presence, and delivering outstanding service [15] - The company aims to enhance U.S. growth through strategic acquisitions of local electronic monitoring service providers [27] - The focus on the North American market is driven by the potential for growth, with the U.S. market being three to four times the size of the European market [54] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning to capitalize on new opportunities driven by a strong reputation in the U.S. and European markets [4] - The ongoing macroeconomic uncertainties and the Israel-Gaza war have not diminished the relevance of the company's solutions, which are essential for enhancing public safety and reducing costs [37] - Management anticipates sustained growth by further expanding market share in the U.S. and Europe while preserving technological advancements [32] Other Important Information - The company completed a successful public offering of $2.9 million to support continued innovation and growth initiatives [3] - A one-time expense of $280,000 was recorded, mainly related to legacy business and allowance for doubtful debt [3] Q&A Session Summary Question: Can you discuss the gross margin improvements this quarter? - Management noted that gross margins increase as projects reach later stages, with larger projects driving higher margins [60] Question: What is the competitive response to your successes? - Management indicated that competitors are aware of their technological advancements but have not posed significant threats [62] Question: How does the U.S. market compare to Europe? - The U.S. market is seen as a significant opportunity, with the company in early stages of development and a growing pipeline [8] Question: Are there plans for additional capital raises? - Management acknowledged the need for capital to support long-term goals but aims to minimize dilution for existing shareholders [130] Question: How do payment terms differ between U.S. and European clients? - Management explained that payment terms vary, with some projects requiring upfront payments while others are based on monthly leases [91]

Revenue Concentration - In the year ended December 31, 2023, 59% of the consolidated net revenue is attributable to sales to two large customers[42]. - In the year ended December 31, 2022, 36% of the consolidated net revenue is attributable to sales to one large customer[43]. - In the year ended December 31, 2021, 10% of the consolidated net revenue is attributable to sales to two large customers[44]. - During the fiscal year ended December 31, 2023, approximately 75% of the company's revenues were derived from sales to markets outside of the United States, compared to 61% in 2022[77]. Financial Performance - Total revenue for the year ended December 31, 2023, was $26.57 million, a 50.6% increase from $17.65 million in 2022[211]. - Revenue from the IoT segment reached $23.77 million in 2023, up 52.1% from $15.63 million in 2022[212]. - Product revenues increased to $19.77 million in 2023, compared to $10.10 million in 2022, reflecting a growth of 96.4%[213]. - The e-Gov segment generated $1.54 million in revenue in 2023, a significant increase from $637,000 in 2022[212]. - The Cyber Security segment reported revenues of $1.26 million in 2023, a slight decrease from $1.38 million in 2022[212]. Competition and Market Risks - The company faces intense competition in the IoT, e-Gov, and Cyber Security markets, which are characterized by rapidly changing technology and customer requirements[45]. - The average selling prices for products may decline due to competitive pricing pressures, which could adversely affect gross margins[47]. - The company expects competition to intensify in its markets, which may impact margins and market share[219]. Operational Challenges - The company has historically funded operations through equity and/or debt issuances, with losses from operations during the last seven years ended December 31, 2023[52]. - The company relies on third-party representatives, resellers, and distributors for marketing and distribution, which may lead to delays in generating sales revenues[58]. - The company’s reliance on third-party technologies and components may delay product launches and impair its competitive ability in the market[85]. - The company relies on a limited number of vendors and subcontractors, which poses risks of delays and defects that could adversely affect revenues and gross margins[87]. - Significant disruptions at suppliers and subcontractors, including geopolitical tensions and natural disasters, could materially impact the company's financial condition[87]. Geopolitical and Economic Risks - The company faces risks related to political, economic, and military instability in Israel, where its principal executive office and R&D facilities are located, which could adversely affect operations[65]. - The company’s operating results may be adversely affected by unfavorable economic conditions and geopolitical instability, including the ongoing conflict involving Israel[64]. - The company may be adversely affected by inflation and currency fluctuations, particularly the exchange rate between the U.S. dollar and the NIS[118]. Strategic Initiatives - The company has sought to acquire complementary businesses to compete effectively, but future acquisitions may not perform as planned[50]. - The company has made several strategic acquisitions, including Prevision for $1.1 million and Safend, enhancing its cyber security capabilities and customer base[142][144]. - SuperCom has three main Strategic Business Units (SBU): e-Gov, IoT and Connectivity, and Cyber Security, focusing on identity solutions and advanced IoT technologies[148]. - The company aims to expand its IoT and Cyber Security activities globally, particularly in the Americas, Europe, and the Far East, while also targeting emerging markets with significant growth opportunities[168]. Intellectual Property and Compliance - The company owns 52 issued patents in the United States and 74 issued patents globally, highlighting its commitment to intellectual property[221]. - The company faces risks related to the protection of its intellectual property rights, which may not be sufficient to prevent competition from third parties[92]. - Compliance with government regulations regarding radio frequency technology may delay product introductions in the U.S. and European markets[102]. Internal Controls and Governance - The company has failed to maintain effective internal control over financial reporting, which could result in material misstatements in its financial statements[112]. - The company has identified material weaknesses in its internal controls, which could lead to regulatory investigations and affect investor confidence[112]. - SuperCom Ltd. is organized under the laws of Israel and operates under home country corporate governance practices, which may provide shareholders with less protection compared to U.S. companies listed on NASDAQ[128]. Future Outlook - The company anticipates continued investment of up to 15% of revenue in expanding its Cyber Security, e-Gov, IoT, and Connectivity solutions[208]. - The company has begun actively bidding on larger international tenders, positioning itself for significant opportunities in the e-Gov market[158]. - The company’s ability to grow significantly depends on the adoption of its technology and solutions by government and public/private organizations, which is uncertain[60].

Financial Data and Key Metrics Changes - Annual revenue increased by 51% to a five-year record level of $26.6 million, with gross profit rising by 60% to $10.2 million compared to $6.4 million [33][8] - GAAP net loss improved to $4 million from a loss of $7.7 million, while non-GAAP net profit improved by $5.5 million to $3.2 million compared to a loss of $2.3 million in the previous year [4][33] - EBITDA reached a five-year record of $4.8 million, reflecting a 2350% increase compared to $0.2 million, driven by revenue growth and operational improvements [43][33] Business Line Data and Key Metrics Changes - R&D expenses decreased by $300,000 to $3.1 million, indicating maturation of new technology launches [3] - Sales and marketing expenses decreased by $460,000 to $2.2 million, while general and administrative expenses increased by $275,000 due to team expansion in the U.S. [3] Market Data and Key Metrics Changes - Revenue from European countries increased by 85% in 2023, reflecting a successful transition from less stable emerging markets to more stable developed countries [12] - The U.S. market is projected to be three times larger than Europe, with the company actively expanding its presence and pipeline in the U.S. [53][41] Company Strategy and Development Direction - The company aims to lead with innovative technology and expand its global presence, focusing on IoT tracking in developed markets [35][36] - The electronic monitoring market is projected to reach $2.1 billion by 2026, with the U.S. and Europe constituting about 95% of this market [36] - The introduction of the PureOne solution is seen as a game changer, enhancing the company's competitive edge [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong pipeline entering 2024, with ongoing projects and new opportunities expected to drive growth [49] - The company noted that despite macroeconomic uncertainties, its solutions are increasingly relevant due to high recidivism rates and the cost-effectiveness of electronic monitoring [23] Other Important Information - The company secured a $3.6 million national electronic monitoring project in Finland, demonstrating its capability in deploying comprehensive solutions [40] - The company completed a successful close of $2.9 million in public offerings to support continued innovation and growth initiatives [44] Q&A Session Summary Question: How does the pipeline look entering 2024 versus 2023? - Management indicated that the pipeline remains strong with several projects in various stages, including contract negotiations and new opportunities expected to be won [49] Question: How has the U.S. pipeline evolved with the launch of single-piece products? - The U.S. pipeline is growing, with the company exploring opportunities at both national and local levels, indicating a significant market potential [53] Question: Can you provide insight on the declining use of cash from operations? - Management explained that while there is a gap between operational cash flows and EBITDA, this is due to project timelines and cash needs, and they expect stabilization over time [56]

Financial Data and Key Metrics Changes - The company achieved a 550% increase in EBITDA, reaching $2.7 million for Q3 2023, and a five-year record net profit [67][81][72] - Gross profit increased by 89% to $4 million compared to $2.1 million, driven by project progress [68] - Net income improved by 107% to $0.15 million profit, compared to a $2.2 million loss [71] Business Line Data and Key Metrics Changes - The IoT division was identified as the primary growth engine, with a year-over-year revenue increase of 67% to $21 million [96] - The company reported a gross margin improvement to 59.4% from 34% last year, reflecting operational efficiencies [95] Market Data and Key Metrics Changes - The electronic monitoring market is projected to reach $2.1 billion by 2026, with the U.S. and Europe constituting about 95% of this market [43] - The company has secured significant new contracts across over 10 countries in Europe, achieving a 65% win rate in competitive tenders [46] Company Strategy and Development Direction - The strategic focus is on expanding the IoT tracking business in developed markets, capitalizing on the growing demand for electronic monitoring solutions [54][72] - The company aims to enhance its U.S. growth through strategic acquisitions of local electronic monitoring service providers [64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for their solutions, particularly in light of high recidivism rates and the rising costs of incarceration [87][88] - The company anticipates sustained growth by expanding market share in the U.S. and Europe while maintaining technological advantages [73] Other Important Information - The company completed a successful public offering of $2.75 million to support innovation and growth initiatives [65] - A new national program was secured with the Finnish Government for deploying domestic violence monitoring solutions [89] Q&A Session Summary Question: What is the pipeline opportunity for PureOne in the U.S. market? - Management indicated that the pipeline is well-built, with ongoing engagement with potential customers [12] Question: Can you discuss the recent secure ID card win in Iceland? - Management noted that while not a core business, they continue to support customers in identification projects [28][29] Question: What can investors expect from 2024? - Management suggested that while they may not provide specific guidance, they are optimistic about growth opportunities based on current projects [26] Question: How does the company view the potential for large European contracts? - Management expressed confidence in their ability to win large deals, with several opportunities expected to arise in 2024 [136]

Exhibit 1 SUPERCOM LTD CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS as of June 30, 2023 (Unaudited) SUPERCOM LTD CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS as of June 30, 2023 (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 State ...

Financial Data and Key Metrics - Revenue increased by 141% year-over-year to $7.7 million in Q2 2023, marking a five-year record [5][11] - Non-GAAP EPS improved to positive $0.07 compared to negative $0.50 in the previous year [5][57] - Gross profit increased by 77% to $2.3 million compared to $1.3 million in Q2 2022 [56] - Operating loss decreased to $650,000 from $1.75 million in the previous year [26] - EBITDA improved to $0.9 million compared to a $0.7 million loss in the previous period [63] - Twelve-Trailing-Month revenue increased by 106% to $25.5 million, driven by IoT division growth [25] Business Line Data and Key Metrics - IoT division achieved over 100% growth in the past 12 months, outpacing the global market growth by 10x [25] - PureSecurity suite, including PureTrack and PureOne, expanded market opportunities by 3-4x [27] - PureProtect, a domestic violence monitoring solution, has been successfully implemented in multiple projects, including a $32 million EM project in Romania [37][45] - PureOne, an all-in-one GPS tracking solution, has been deployed in the U.S. and received positive feedback [30][35] Market Data and Key Metrics - The electronic monitoring market is estimated to reach $2.1 billion by 2026, up from $1.2 billion in 2021 [34] - U.S. and Europe constitute 95% of the electronic monitoring market [34] - In Europe, over $200 million in project bid opportunities were available in the past 18 months [34] - SuperCom expanded its business into over 10 European countries and secured significant new projects, including a $3.6 million National EM project in Finland [9] Company Strategy and Industry Competition - SuperCom focuses on technological leadership, market expansion, and operational efficiency to drive growth [7][13][50] - The company has a 65%-win rate in European competitive tenders, displacing incumbent vendors [52] - SuperCom is recession-resistant due to high recidivism rates, prison overcrowding, and soaring incarceration costs [8] - The company is actively pursuing strategic acquisitions to expand market presence and achieve vertical integration synergies [10][54] Management Commentary on Operating Environment and Future Outlook - Management highlighted the growing global trend of governments adopting innovative solutions to reduce incarceration costs and improve public safety [2] - The company expects sustained growth by expanding market share in the U.S. and Europe, driven by technological advantage and robust growth foundations [13] - SuperCom anticipates rapid expansion in the U.S. market due to the introduction of PureOne and its acceptance as a well-known vendor [17][35] - Management is optimistic about future growth opportunities, particularly in domestic violence monitoring and IoT tracking [38][53] Other Important Information - SuperCom has a stable cash position and credit facilities to support project execution [58] - The company has reduced operating expenses by $350,000, including a $200,000 decrease in sales and marketing expenses and a $55,000 decrease in general and administrative expenses [12][26] - SuperCom has a recurring revenue base of over 70% in 2022, driven by multiyear governmental projects [45] Q&A Session Summary Question: When did PureOne become available in the U.S., and when can we expect to see it deployed? - PureOne was introduced in the U.S. in July 2023 and is already being deployed in various locations with positive feedback [30][35] Question: How does the company structure incentives for sales, particularly in the U.S.? - The company uses a commission structure with on-target quotas and acceleration bonuses for sales teams. Resellers also play a significant role in selling products like PureOne [41] Question: How does the company view the pipeline for PureOne in the U.S. compared to Europe? - The U.S. market is expected to grow faster due to the fragmented nature of the market and the company's established presence. The company has a $200 million pipeline in Europe and is evaluating new opportunities in the U.S. [31][17] Question: How long does it take for resellers to transition from evaluating PureOne to full deployment? - The transition timeline depends on the resellers' confidence in the technology. Initial deployments are small-scale, with larger deployments expected as confidence grows [60][61]

Financial Data and Key Metrics Changes - The company achieved record-breaking revenue of $6.4 million in Q1 2023, representing a 109% year-over-year growth, following previous quarters of 102% and 59% growth [27][42]. - EBITDA for Q1 2023 was $0.4 million, marking the third consecutive quarter of positive EBITDA, attributed to targeted spending and significant revenue increases [28][59]. - Gross profit increased by 19% to $1.6 million compared to $1.3 million in the previous year, despite higher costs associated with new project launches [86]. Business Line Data and Key Metrics Changes - The company has successfully executed a $33 million National EM project in Romania, contributing to its revenue growth and operational leverage [4][45]. - The domestic violence solution, PureProtect, received a follow-on order of $7.1 million, building on an initial order of over $8.1 million [23][66]. - The electronic monitoring market is projected to grow from $1.2 billion in 2021 to $2.1 billion by 2026, with the US and Europe accounting for about 95% of this market [16]. Market Data and Key Metrics Changes - The company has expanded its presence across Europe, now operating in over 10 countries, and has a strong pipeline of new projects due to increased RFP activity [6][22]. - The US market presents significant growth opportunities, with a focus on expanding domestic violence solutions and electronic monitoring services [60][95]. Company Strategy and Development Direction - The company aims to enhance its technological advantage and expand its market presence through strategic investments in R&D and sales [30][59]. - The strategy includes shifting from passive bidding to an active outreach sales strategy, supported by recruiting new sales team members with industry expertise [7][31]. - The company is actively monitoring the market for potential acquisitions to expand its market presence and achieve vertical integration [26]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's recession-resistant business model, supported by high recidivism rates and prison overcrowding [20][21]. - The company anticipates sustained growth by expanding its market share in the US and Europe, while maintaining a commitment to technological innovation [59][58]. - Management highlighted the growing demand for electronic monitoring solutions as governments shift towards alternatives to incarceration [48][93]. Other Important Information - The company has won over 50 new multi-year governmental projects since 2018, with project launches valued at over $40 million in the past year [92]. - The cash balance at the end of 2022 was $3.9 million, with a credit facility in place to support ongoing projects [99]. Q&A Session Summary Question: Can you talk about your strategy towards expanding the domestic violence solutions into the US market and the timing? - The company has started with the European market and is now looking to expand into California and other states, expecting good reception for its products [60][62]. Question: Can you comment on the pipeline of large opportunities in Europe and potential timing? - The company has a strong pipeline, including a $33 million project in Romania and other projects in Croatia, with expectations for announcements in the coming months [64][65]. Question: What is the reason for winning contracts from incumbents? - The company has a strong portfolio of recent projects, competitive pricing, and superior technology scores, which contribute to its success in displacing incumbents [78].

Financial Data and Key Metrics Changes - Annual revenues increased by 44% to $17.7 million in 2022, with a remarkable year-over-year growth of 69% in Q4 [27][72] - Operating cash use decreased from $9.4 million in 2021 to $4.7 million in 2022, reflecting positive cash flow generation from projects [16][56] - The company achieved positive EBITDA in both Q3 and Q4 of 2022, with EBITDA of $400,000 in Q3 and $770,000 in Q4 [74][92] Business Line Data and Key Metrics Changes - The IoT division was the primary growth engine, achieving a staggering 76% growth in revenues during 2022 [72][74] - Gross profit increased by 3% to $6.4 million compared to $6.2 million in the previous year, despite higher costs associated with new project launches [52][55] - The company launched two new products, PureOne and PureProtect, enhancing its product portfolio and market reach [34][44] Market Data and Key Metrics Changes - Revenue from European countries increased by 230% to $9.6 million, accounting for approximately 54% of total sales in 2022 [36] - The electronic monitoring market is projected to reach roughly $2.1 billion by 2026, with the US and Europe constituting about 95% of the market [32] - The company won contracts valued at over $40 million in the past year, indicating strong market demand [28][31] Company Strategy and Development Direction - The company aims to revolutionize the public safety sector through proprietary electronic monitoring technology and data intelligence [29] - A strategic focus on expanding presence in developed countries where the opportunity is greatest, particularly in the electronic monitoring market [30][32] - The company plans to enhance its US market growth through strategic acquisitions of local electronic monitoring service providers [70][71] Management's Comments on Operating Environment and Future Outlook - Management highlighted the countercyclical nature of the electronic monitoring industry, with growing public policy shifts towards monitoring instead of incarceration [89][102] - The company anticipates sustained growth by expanding market share in the US and Europe, supported by a strong reputation and technological advantage [89][90] - Management expressed confidence in achieving cash flow positivity as more projects generate positive cash flow [117][118] Other Important Information - The company has a stable cash position with $4.5 million in cash and equivalents at the end of 2022 [56] - One-time expenses of approximately $1.1 million were incurred mainly due to reorganization expenses related to the legacy business [57] - The company is not currently pursuing acquisition offers, focusing instead on organic growth plans [114][122] Q&A Session Summary Question: Future EBITDA expectations - Management indicated that while fluctuations in EBITDA are expected due to project nature, they aim to maintain positive EBITDA [92] Question: Competitive environment in Europe - Management noted that despite competition, their technology remains strong, and they have maintained a high win rate in competitive RFPs [83] Question: Interest from potential acquirers - Management acknowledged vague discussions of interest from potential acquirers but emphasized a focus on current growth plans rather than pursuing acquisition discussions [114][122]

Company Overview [Business and Strategy](index=3&type=section&id=Introduction_summary) SuperCom provides global identity, IoT, and cybersecurity solutions to governments and organizations through three strategic business units enhanced by key acquisitions - The company is structured into three main **Strategic Business Units (SBUs)**: e-Gov, IoT and Connectivity, and Cyber Security[17](index=17&type=chunk) - The **e-Gov SBU** provides digital and traditional identity solutions, such as national IDs and passports, to governments worldwide[17](index=17&type=chunk)[18](index=18&type=chunk) - The **IoT and Connectivity SBU** offers solutions for real-time tracking and monitoring of people and objects, enhanced by the acquisitions of Leaders in Community Alternatives (LCA) and Alvarion Technologies[19](index=19&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - The **Cyber Security SBU** was established through the acquisitions of Prevision and Safend, providing endpoint data protection and cybersecurity services to a broad customer base[23](index=23&type=chunk)[24](index=24&type=chunk) [Selected Financial Data](index=4&type=section&id=Selected%20Financial%20Data) The company's revenues increased to $17.6 million in 2022, though it has experienced net losses over the past five years alongside declining shareholders' equity and rising long-term liabilities **Selected Consolidated Financial Data (2018-2022)** | (U.S. dollars in thousands, except per share data) | 2022 | 2021 | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Income Statement Data:** | | | | | | | Revenues | 17,649 | 12,267 | 11,770 | 16,475 | 21,882 | | Gross profit | 6,388 | 6,204 | 5,581 | 6,348 | 8,139 | | Operating loss | (6,005) | (6,737) | (3,749) | (8,173) | (9,675) | | Net (loss) | (7,457) | (10,138) | (7,867) | (11,505) | (15,740) | | Basic loss per share | (2.0) | (3.9) | (4.5) | (7.1) | (10.3) | | **Balance Sheet Data (End of Period):** | | | | | | | Cash and cash equivalents and restricted cash | 4,505 | 4,604 | 3,952 | 1,210 | 1,639 | | TOTAL ASSETS | 42,040 | 42,119 | 40,344 | 40,004 | 44,349 | | Total Long-term Liabilities | 33,670 | 32,124 | 15,827 | 17,359 | 11,256 | | SHAREHOLDERS' EQUITY | 3,131 | 4,392 | 4,919 | 8,332 | 19,550 | Key Information [Risk Factors](index=8&type=section&id=D.%20Risk%20Factors) The company faces significant risks from customer concentration, a history of net losses, international operational challenges, a material weakness in financial controls, and geopolitical instability - The company has a significant customer concentration risk, with **one large customer accounting for 36% of consolidated net revenue in 2022**[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - The company has been profitable in only one of the last seven fiscal years and has historically funded its operations through equity and debt financing, with future financing not guaranteed on favorable terms[55](index=55&type=chunk) - International operations are a key source of risk, with approximately **61% of 2022 revenues derived from markets outside the United States**[71](index=71&type=chunk) - A **material weakness has been identified in the company's internal control over financial reporting**, which could result in material misstatements in financial statements[103](index=103&type=chunk) - The company's location and operations in Israel expose it to **political, economic, and military instability** in the region[104](index=104&type=chunk)[105](index=105&type=chunk) - As a foreign private issuer, SuperCom is exempt from certain SEC reporting and NASDAQ governance rules, potentially resulting in **less information being available to investors**[116](index=116&type=chunk)[117](index=117&type=chunk)[119](index=119&type=chunk) Information on the Company [History and Development of the Company](index=22&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Founded in 1988, SuperCom evolved into a global security provider through strategic shifts and key acquisitions between 2013 and 2016 that established its current business structure - SuperCom Ltd. was incorporated in Israel on July 4, 1988[123](index=123&type=chunk) - The company significantly expanded its product depth and global presence between 2013 and 2016 through a series of **strategic acquisitions**[135](index=135&type=chunk) - Key acquisitions include: the SmartID division of OTI (2013), Prevision Ltd (2015), Leaders in Community Alternatives, Inc (LCA) (2016), Safend Ltd (2016), and Alvarion Technologies Ltd (2016)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) [Business Overview](index=24&type=section&id=B.%20Business%20Overview) SuperCom operates globally through e-Gov, IoT, and Cyber Security SBUs, with a strategy focused on synergies, global expansion, and long-term government contracts - The company's growth strategy includes leveraging its customer base across its SBUs, expanding IoT and Cyber Security activities globally, and securing additional long-term government contracts[160](index=160&type=chunk) - The company owns a portfolio of **52 issued patents in the United States** and **74 issued patents in the rest of the world**[222](index=222&type=chunk) **Revenue by Segment (in thousands of dollars)** | Segment | 2022 | 2021 | | :--- | :--- | :--- | | e-Gov | $637 | $1,729 | | IoT | $15,628 | $8,904 | | Cyber Security | $1,384 | $1,634 | | **Total** | **$17,649** | **$12,267** | **Revenue by Geographic Market (in thousands of dollars)** | Region | 2022 | 2021 | | :--- | :--- | :--- | | Africa | $374 | $1,586 | | Europe | $9,559 | $2,912 | | South and center America | - | $37 | | United States | $6,877 | $6,820 | | Israel | $693 | $757 | | Asia Pacific | $146 | $155 | | **Total** | **$17,649** | **$12,267** | **Revenue by Products and Services (in thousands of dollars)** | Type | 2022 | 2021 | | :--- | :--- | :--- | | Products | $10,099 | $4,475 | | Services | $7,550 | $7,792 | | **Total revenues** | **$17,649** | **$12,267** | [Organizational Structure](index=34&type=section&id=C.%20Organizational%20Structure) SuperCom Ltd is the parent company of several wholly-owned subsidiaries in the U.S and Israel that execute its business strategy across its core segments - The company's active, wholly-owned subsidiaries as of April 2023 include SuperCom Inc (USA), Leaders in Community Alternatives, Inc (USA), Safend Ltd (Israel), Prevision Ltd (Israel), and Alvarion Technologies Ltd (Israel)[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) [Property, Plants and Equipment](index=34&type=section&id=D.%20Property,%20Plants%20and%20Equipment) The company conducts its operations from leased facilities in Israel and California, with total rental expenses amounting to $817,160 in 2022 - The company leases all its properties, with primary locations in Tel Aviv and Herzliya, Israel, and office premises in California for its subsidiary, LCA Inc[233](index=233&type=chunk)[234](index=234&type=chunk) - Total annual rental fees were **$817,160 in 2022**, up from $714,000 in 2021[236](index=236&type=chunk) Operating and Financial Review and Prospects [Operating Results](index=35&type=section&id=A.%20Operating%20Results) In 2022, revenues grew 44% driven by the IoT segment, but gross margin declined while the net loss improved to $7.5 million due to lower 'Other expenses' - **Total revenues increased by 44% in 2022 to $17.6M**, largely due to a 76% increase in IoT segment revenue to $15.6M[255](index=255&type=chunk) - **Gross profit margin decreased to 36.2% in 2022** from 50.6% in 2021, mainly due to costs from a new contract's implementation and a shift in revenue mix[256](index=256&type=chunk) - Operating expenses (excluding 'Other expenses') **rose 31.3% to $11.3M in 2022**, driven by increased R&D and sales and marketing activities[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) - **Net loss for 2022 was $7.5M**, an improvement from a net loss of $10.1M in 2021, primarily due to a $3.2M reduction in 'Other expenses'[265](index=265&type=chunk) **Consolidated Income Statement Data (% of Total Revenues)** | | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | 100% | 100% | | Cost of revenues | 63.8% | 49.4% | | **Gross profit** | **36.2%** | **50.6%** | | Research and development | 19.3% | 22.5% | | Selling and marketing | 15.1% | 13.5% | | General and administrative | 29.4% | 33.8% | | Other expenses | 6.4% | 35.7% | | **Operating loss** | **(34.0%)** | **(54.9%)** | | **Net Loss** | **(42.3%)** | **(82.6%)** | [Liquidity and Capital Resources](index=40&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company has an accumulated deficit but maintains positive working capital and has bolstered liquidity through financing activities, which management believes is sufficient for the next 12 months - The company has experienced net losses and significant cash outflows, with an **accumulated deficit of $102.9 million** as of December 31, 2022[279](index=279&type=chunk)[621](index=621&type=chunk) - The company raised approximately **$4.65 million** in a registered direct offering in March 2022 and an additional **$2.4 million** in March 2023[282](index=282&type=chunk)[283](index=283&type=chunk) - Management believes that existing financing and expected cash from customer contracts will be sufficient to fund operations for at least the next 12 months[284](index=284&type=chunk)[629](index=629&type=chunk) **Summary of Cash Flows (in thousands of dollars)** | | Year ended Dec 31, 2022 | Year ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $ (4,654) | $ (9,413) | | Net cash used in investing activities | $ (2,189) | $ (1,639) | | Net cash provided by financing activities | $ 6,744 | $ 11,704 | | **Net (decrease)/increase in cash** | **$ (99)** | **$ 652** | [Critical Accounting Policies](index=41&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant judgment, particularly in revenue recognition, allowance for doubtful accounts, and the valuation of intangible assets and goodwill - The company adopted **ASC 606 for revenue recognition**, which impacts how revenue from software licenses, maintenance, and long-term contracts is recognized[291](index=291&type=chunk)[294](index=294&type=chunk) - As of December 31, 2022, the aggregate amount of transaction price allocated to remaining performance obligations was **$33.13 million**, with 43% expected to be recognized as revenue within 12 months[324](index=324&type=chunk)[698](index=698&type=chunk) - The allowance for doubtful accounts is a significant estimate, standing at **$12.67 million** as of December 31, 2022[329](index=329&type=chunk) - The company capitalizes software development costs incurred during the application development stage and amortizes them over an estimated useful life of 5 years[700](index=700&type=chunk)[701](index=701&type=chunk) [Research and Development](index=45&type=section&id=C.%20Research%20and%20Development,%20Patents%20and%20Licenses,%20etc.) The company increased its R&D investment to $4.6 million in 2022, with $1.2 million capitalized, to enhance products across its business segments - As of December 31, 2022, the company employed 29 people in research and development activities[331](index=331&type=chunk) **R&D Spending (in thousands of dollars)** | | 2022 | 2021 | | :--- | :--- | :--- | | Total R&D Spend | $4,617 | $3,502 | | Capitalized Software Costs | $1,205 | $739 | | R&D Expense | $3,412 | $2,763 | Directors, Senior Management and Employees [Directors and Senior Management](index=45&type=section&id=A.%20Directors%20and%20Senior%20Management) The company's leadership includes experienced executives, with a four-member board chaired by Arie Trabelsi and key management roles held by his sons - Arie Trabelsi serves as a Director and has extensive experience in the communications industry[335](index=335&type=chunk) - Key executive officers include **Ordan Trabelsi (President & CEO)** and **Barak Trabelsi (COO & CTO)**[340](index=340&type=chunk)[341](index=341&type=chunk) - The board of directors is comprised of four members: Arie Trabelsi, and three independent directors: Tal Naftali Shmuel, Oren Raoul De Lange, and Shoshana Cohen Shapira[334](index=334&type=chunk)[353](index=353&type=chunk) [Compensation](index=47&type=section&id=B.%20Compensation) In 2022, total compensation for seven directors and executive officers was $666,357 in salaries and bonuses, plus $56,205 in pension benefits - As of December 31, 2022, directors and executive officers as a group held options to purchase **640,000 ordinary shares** at an average exercise price of $3.25 per share[348](index=348&type=chunk) **2022 Compensation for All Directors and Executive Officers (7 persons)** | Compensation Type | Amount (USD) | | :--- | :--- | | Salaries, fees, commissions and bonuses | $666,357 | | Pension, retirement and similar benefits | $56,205 | [Board Practices](index=48&type=section&id=C.%20Board%20Practices) Governed by Israeli law, the board has four members, including two external directors, and has established Audit and Compensation Committees with independent majorities - The board is comprised of four members, including two external directors, Shoshana Cohen Shapira and Oren Raoul De Lange, as required by Israeli Companies Law[353](index=353&type=chunk) - The company has an Audit Committee and a Compensation Committee, both of which must include all external directors and have a majority of independent directors[362](index=362&type=chunk)[365](index=365&type=chunk) - The company follows Israeli corporate law for approving transactions with office holders and controlling shareholders, requiring multi-level approvals[369](index=369&type=chunk)[379](index=379&type=chunk)[382](index=382&type=chunk) [Employees](index=55&type=section&id=D.%20Employees) As of December 31, 2022, SuperCom had 122 full-time employees, with the largest department being Research, Development & Operations and the workforce split between the US and Israel/Europe **Employee Headcount by Department and Geography** | | Dec. 31, 2022 | Dec. 31, 2021 | | :--- | :--- | :--- | | **By Department** | | | | Research, Development & Operations | 91 | 93 | | Marketing and Sales | 9 | 8 | | Administration | 22 | 13 | | **Total** | **122** | **114** | | **By Geography** | | | | Israel & Europe | 58 | 53 | | United States | 64 | 61 | | **Total** | **122** | **114** | [Share Ownership](index=56&type=section&id=E.%20Share%20Ownership) Director Arie Trabelsi is the largest beneficial owner with 15.69% of shares, while the company utilizes stock option plans for incentives, with 811,050 options outstanding at year-end 2022 - As of December 31, 2022, director **Arie Trabelsi beneficially owned 15.69%** of the outstanding shares, primarily through his control of Sigma Wave Ltd[404](index=404&type=chunk)[405](index=405&type=chunk) - As of December 31, 2022, there was **$1,125,448 of unrecognized compensation cost** related to non-vested share-based compensation arrangements[414](index=414&type=chunk) **Stock Option Activity** | | 2022 | 2021 | | :--- | :--- | :--- | | **Number of options** | | | | Outstanding at Beginning of year | 21,388 | 33,484 | | Granted | 800,937 | - | | Exercised | (1,666) | (4,496) | | Canceled and forfeited | (9,610) | (7,600) | | **Outstanding at end of year** | **811,050** | **21,388** | | **Exercisable at end of year** | **213,597** | **15,950** | Major Shareholders and Related Party Transactions [Major Shareholders](index=58&type=section&id=A.%20Major%20Shareholders) As of year-end 2022, Sigma Wave Ltd, controlled by director Arie Trabelsi's family, was the only known beneficial owner with over 5% of the company's shares - As of December 31, 2022, **Sigma Wave Ltd. beneficially owned 10.9%** of the outstanding shares[416](index=416&type=chunk) - Sigma Wave Ltd is controlled by the family of Arie Trabelsi, a director and parent of CEO Ordan Trabelsi and COO Barak Trabelsi[417](index=417&type=chunk) - As of December 31, 2022, approximately **92.3% of the company's ordinary shares were held of record by the U.S. nominee company CEDE & Co**[420](index=420&type=chunk) [Related Party Transactions](index=59&type=section&id=B.%20Related%20Party%20Transactions) The company engages in transactions with director and controlling shareholder Arie Trabelsi, including a management fee agreement and short-term, interest-free loans - The company has a management fee agreement with director Arie Trabelsi, with accrued expenses of **$85,000** as of December 31, 2022[422](index=422&type=chunk) - Mr and Mrs Trabelsi have provided short-term, interest-free loans to the company, with an outstanding balance of **$166,000** as of December 31, 2022[423](index=423&type=chunk) Financial Information [Legal Proceedings and Dividend Policy](index=59&type=section&id=A.%20Consolidated%20Statements%20and%20Other%20Financial%20Information) The company is involved in incidental legal proceedings and has never paid cash dividends, intending to retain future earnings to fund business growth - The company is party to legal proceedings in the normal course of business but does not believe any will have a material adverse effect[426](index=426&type=chunk) - The company has **never paid cash dividends** and intends to retain future earnings for business use, with no plans for dividends in the foreseeable future[427](index=427&type=chunk) Additional Information [Memorandum and Articles of Association](index=61&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Association) As an Israeli public company, its Articles of Association outline director duties, related-party transaction approvals, and an authorized capital of 10 million ordinary shares - The company is authorized to issue **10,000,000 ordinary shares** with a par value of NIS 2.5 per share[447](index=447&type=chunk) - The company's governance is subject to the Israeli Companies Law, which codifies the fiduciary duties of office holders and requires specific approval procedures for related-party transactions[452](index=452&type=chunk)[454](index=454&type=chunk)[462](index=462&type=chunk) - The company has adopted a compensation policy for office holders, which must be approved by the board and shareholders every three years[459](index=459&type=chunk)[461](index=461&type=chunk) [Taxation](index=67&type=section&id=E.%20Taxation) This section details Israeli and U.S. tax considerations, including a 23% Israeli corporate tax rate, dividend withholding rules, and the company's status as a non-PFIC - The general corporate tax rate for Israeli companies was **23% in 2022**[490](index=490&type=chunk) - Gains on the sale of ordinary shares are generally **exempt from Israeli capital gains tax** for non-Israeli residents[498](index=498&type=chunk) - Dividends distributed to non-residents are generally subject to a **25% withholding tax**, which may be reduced by a tax treaty[506](index=506&type=chunk) - The company believes it is not currently a **Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes[523](index=523&type=chunk) Quantitative and Qualitative Disclosures About Market Risks [Market Risk Exposure](index=72&type=section&id=Exposure%20to%20Market%20Risks) The company's primary market risk is foreign currency exchange rate fluctuations, particularly between the U.S. dollar and the New Israeli Shekel - The principal market risk is exposure to **foreign currency fluctuations**, mainly between the U.S. dollar and the NIS[538](index=538&type=chunk)[539](index=539&type=chunk) - A hypothetical 10% movement in foreign currency rates against the U.S. dollar would result in an approximate **$0.4 million change** in the expected 2022 net income[540](index=540&type=chunk) Controls and Procedures [Evaluation of Controls and Procedures](index=73&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of year-end 2022 due to a material weakness in internal control over financial reporting - Management concluded that **disclosure controls and procedures were ineffective** as of December 31, 2022[545](index=545&type=chunk) - A **material weakness** was identified in internal control over financial reporting due to a lack of sufficient resources and segregation of duties in its accounting function[547](index=547&type=chunk) - Notwithstanding the material weakness, management believes the consolidated financial statements are **fairly presented in all material respects**[548](index=548&type=chunk) Corporate Governance and Other Information [Audit Committee Financial Expert](index=73&type=section&id=ITEM%2016A.%20AUDIT%20COMMITTEE%20FINANCIAL%20EXPERT) The Board of Directors has determined that two independent audit committee members, Mr. De Lange and Mrs. Shapira, qualify as "audit committee financial experts" - The Board has identified **Mr. De Lange and Mrs. Shapira** as audit committee financial experts[550](index=550&type=chunk) [Principal Accountant Fees and Services](index=74&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) In 2022, the company incurred $155,000 in fees from its principal accounting firm, all for audit services and pre-approved by the Audit Committee **Accountant Fees (in thousands of dollars)** | Service Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $155,000 | $160,000 | | Audit-related fees | - | - | | Tax fees | - | $12,000 | | **Total** | **$155,000** | **$172,000** | [Changes in Certifying Accountant](index=75&type=section&id=ITEM%2016F.%20CHANGES%20IN%20REGISTRANT'S%20CERTIFYING%20ACCOUNTANT) On December 21, 2022, SuperCom replaced its auditor with Yarel + Partners due to the former firm's reduced auditing practices, with no disagreements on accounting principles - The company replaced its auditor, Halperin Ilanit, with **Yarel + Partners** on December 21, 2022[560](index=560&type=chunk) - There were **no disagreements** with the former auditor on any matters of accounting principles, financial statement disclosure, or auditing scope[563](index=563&type=chunk) [Corporate Governance](index=75&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) As a foreign private issuer, SuperCom follows Israeli home country governance practices in lieu of certain NASDAQ rules for director nominations and equity plan approvals - The company follows its home country (Israel) governance practices in lieu of certain NASDAQ rules, including those for director nominations and shareholder approval of equity compensation plans[567](index=567&type=chunk)[568](index=568&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=78&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor's report for 2022 highlights several Critical Audit Matters, including goodwill impairment, allowance for receivables, capitalized software costs, and going concern - The 2022 audit identified four **Critical Audit Matters**: Goodwill Impairment Assessment, Allowance for accounts receivables, Assessment of capitalized internal costs to develop software, and Going concern assessment[580](index=580&type=chunk)[581](index=581&type=chunk)[583](index=583&type=chunk) - The 2021 audit identified three **Critical Audit Matters**: Goodwill Impairment Assessment, Allowance for accounts receivables, and Going concern assessment[596](index=596&type=chunk)[598](index=598&type=chunk)[601](index=601&type=chunk) [Consolidated Financial Statements Data](index=83&type=section&id=Consolidated%20Financial%20Statements) The 2022 consolidated financial statements show total assets of $42.0 million, a net loss of $7.5 million, and negative operating cash flow of $4.7 million **Consolidated Balance Sheets (As of December 31, in thousands of dollars)** | | 2022 | 2021 | | :--- | :--- | :--- | | **TOTAL CURRENT ASSETS** | **26,290** | **26,108** | | **TOTAL LONG-TERM ASSETS** | **15,750** | **16,011** | | **TOTAL ASSETS** | **42,040** | **42,119** | | **TOTAL CURRENT LIABILITIES** | **5,239** | **5,603** | | **TOTAL LONG TERM LIABILITIES** | **33,670** | **32,124** | | **TOTAL LIABILITIES** | **38,909** | **37,727** | | **Total shareholders' equity** | **3,131** | **4,392** | | **Total liabilities and shareholders' equity** | **42,040** | **42,119** | **Consolidated Statements of Operations (For the Year Ended December 31, in thousands of dollars)** | | 2022 | 2021 | | :--- | :--- | :--- | | Total revenues | 17,649 | 12,267 | | Gross profit | 6,388 | 6,204 | | Total operating expenses | 12,393 | 12,941 | | Operating loss | (6,005) | (6,737) | | Financial expenses, net | (1,751) | (3,396) | | **Net loss** | **(7,457)** | **(10,138)** | | **Basic and Diluted Net loss per share** | **$(2.0)** | **$(3.9)** |