v2.4.0.6
Document and Entity Information
12 Months Ended
Dec. 31, 2013
Document and Entity Information [Abstract]  
Document Type 20-F
Document Period End Date Dec. 31, 2013
Amendment Flag false
Entity Registrant Name SuperCom Ltd
Entity Central Index Key 0001291855
Trading Symbol SPCB
Current Fiscal Year End Date --12-31
Document Fiscal Period Focus FY
Document Fiscal Year Focus 2013
Entity Well-Known Seasoned Issuer No
Entity Current Reporting Status Yes
Entity Filer Category Non-accelerated Filer
Entity Common Stock, Shares Outstanding 13,284,144
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
CURRENT ASSETS:    
Cash and cash equivalents $ 2,673 $ 225
Restricted bank deposit 85   
Trade receivables (net of allowance for doubtful accounts of $ 2,084 and $ 1,726 as of December 31, 2013 and 2012, respectively) 3,096 1,598
Deferred tax short term 2,183 516
Other accounts receivable and prepaid expenses (Note 3) 3,365 311
Inventories, net (Note 4) 707 280
Total current assets 12,109 2,930
Severance pay fund 294 203
Deferred tax long term 3,930 517
Customer Contracts 8,100   
Software and other IP 6,210   
Goodwill 889   
Property and equipment, net (Note 6) 176 93
Total assets 31,708 3,743
CURRENT LIABILITIES:    
Short-term bank credit 1 101
Trade payables 1,689 1,780
Employees and payroll accruals 419 138
Related parties 434 387
Accrued expenses and other liabilities (Note 8) 3,636 390
Short-term liability for future earn-out 1,978   
Total current liabilities 8,157 2,796
LONG-TERM LIABILITIES:    
Long-term liability for future earn-out 3,760   
Accrued severance pay 399 236
Total long-term liabilities 4,159 236
SHAREHOLDERS' EQUITY:    
Share capital: Ordinary shares of NIS 0.25 par value - Authorized 15,000,000 shares; Issued and outstanding: 13,284,144 and 8,651,703 shares as of December 31, 2013 and 2012, respectively 904 574
Additional paid-in capital 55,530 43,518
Amount of liability extinguished on account of shares    127
Accumulated deficit (37,042) (43,508)
Total shareholders' equity 19,392 711
Total liabilities and shareholders' equity $ 31,708 $ 3,743
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Parenthetical)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2013
USD ($)
Dec. 31, 2013
ILS
Dec. 31, 2012
USD ($)
Dec. 31, 2012
ILS
CONSOLIDATED BALANCE SHEETS [Abstract]        
Trade receivables, allowance for doubtful accounts $ 2,084   $ 1,726  
Ordinary shares, par value per share   0.25   0.25
Ordinary shares, shares authorized 15,000,000 15,000,000 15,000,000 15,000,000
Ordinary shares, shares issued 13,284,144 13,284,144 8,651,703 8,651,703
Ordinary shares, shares outstanding 13,284,144 13,284,144 8,651,703 8,651,703
v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]      
Revenues $ 8,822 $ 8,940 $ 7,922
Cost of revenues 1,896 1,619 3,306
Gross profit 6,926 7,321 4,616
Operating expenses:      
Research and development 564 313 462
Selling and marketing 3,158 3,060 3,505
General and administrative 1,183 857 732
Other expenses (income) 507 1,085 (137)
Total operating expenses 5,412 5,315 4,562
Operating income 1,514 2,006 54
Financial income (expenses), net (156) 1,805 990
Income before income tax 1,358 3,811 1,044
Income tax benefit (expense) 5,108 1,006 (25)
Net income $ 6,466 $ 4,817 $ 1,019
Net earnings per share:      
Basic $ 0.71 $ 0.75 $ 0.47
Diluted $ 0.70 $ 0.59 $ 0.37
Weighted average number of ordinary shares used in computing basic earnings per share 9,107,130 6,464,808 2,147,370
Weighted average number of ordinary shares used in computing diluted earnings per share 9,194,865 8,156,339 2,755,353
v2.4.0.6
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT (USD $)
In Thousands, except Share data
Total
Ordinary shares [Member]
Additional paid-in capital [Member]
Amount of liability extinguished on account of shares [Member]
Accumulated deficit [Member]
Balance at Dec. 31, 2010 $ (7,871) $ 113 $ 41,360    $ (49,344)
Balance (in shares) at Dec. 31, 2010   1,713,134      
Exercise of options and warrants    [1]    [1]         
Exercise of options and warrants (in shares)   2,355      
Shares, options and warrants issued in connection with extinguishments of liabilities (see Notes 1c, 12e and 13d) 1,241 79 343 819   
Shares, options and warrants issued in connection with extinguishments of liabilities (see Notes 1c 12e and 13d) (in shares)   1,116,338      
Stock- based compensation 10    10      
Net income 1,019          1,019
Balance at Dec. 31, 2011 (5,601) 192 41,713 819 (48,325)
Balance (in shares) at Dec. 31, 2011   2,831,827      
Exercise of options and warrants    5 (5)      
Exercise of options and warrants (in shares)   80,499      
Shares, options and warrants issued in connection with extinguishments of liabilities (see Notes 1c, 12e and 13d) 1,495 377 1,810 (692)   
Shares, options and warrants issued in connection with extinguishments of liabilities (see Notes 1c 12e and 13d) (in shares)   5,739,377      
Stock- based compensation               
Net income 4,817          4,817
Balance at Dec. 31, 2012 711 574 43,518 127 (43,508)
Balance (in shares) at Dec. 31, 2012   8,651,703      
Exercise of options and warrants 140 11 129      
Exercise of options and warrants (in shares)   155,141      
Shares, options and warrants issued in connection with extinguishments of liabilities (see Notes 1c, 12e and 13d)    72 55 (127)   
Shares, options and warrants issued in connection with extinguishments of liabilities (see Notes 1c 12e and 13d) (in shares)   1,027,300      
Issuance of share capital, net of issuance costs 12,043 247 11,796      
Issuance of share capital, net of issuance costs (in shares) 3,450,000 3,450,000      
Stock- based compensation 32    32      
Net income 6,466          6,466
Balance at Dec. 31, 2013 $ 19,392 $ 904 $ 55,530    $ (37,042)
Balance (in shares) at Dec. 31, 2013   13,284,144      
[1] Less than $1.
v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities:      
Net income $ 6,466 $ 4,817 $ 1,019
Adjustments to reconcile net income (loss) to net cash used in operating activities:      
Depreciation and amortization 48 31 28
Accrued severance pay 163 9 (27)
Stock-based compensation 32    10
Deferred tax (5,080) (1,033)   
Capital loss on disposal of property and equipment       6
Capital gain on extinguishments of liabilities    (2,230) (2,149)
Decrease (increase) in trade receivables, net (1,498) (55) (790)
Decrease (increase) in other accounts receivable and prepaid expenses (2,779) (206) 283
Decrease (increase) in inventories, net (84) (11) (72)
Increase (decrease) in trade payables (142) (659) 1,466
Increase (decrease) in employees and payroll accruals 257 (1) 3
Increase (decrease) in advances from customer       (1,010)
Increase (decrease) in accrued expenses and other liabilities 2,050 (638) 1,044
Net cash provided by (used in) operating activities (567) 24 (189)
Cash flows from investing activities:      
Purchase of property and equipment (103) (28) (23)
Proceeds from sale of property and equipment       3
Acquisition of a business entity (8,788)      
Decrease in severance pay fund (91) 25 6
Restricted cash deposits, net (85)    130
Net cash provided by (used in) investing activities (9,067) (3) 116
Cash flows from financing activities:      
Short-term bank credit, net (101) (11) 112
Principle repayment of convertible bonds       (21)
Proceeds from issuance of share capital, net of issuance costs 12,043      
Proceeds from exercise of options and warrants, net 140    [1]    [1]
Net cash (used in) provided by financing activities 12,082 (11) 91
Increase (decrease) in cash and cash equivalents 2,448 10 18
Cash and cash equivalents at the beginning of the year 225 215 197
Cash and cash equivalents at the end of the year $ 2,673 $ 225 $ 215
[1] Less than $1.
v2.4.0.6
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Assets and liabilities of the acquired business, as of date of acquisition:      
Working capital (excluding cash and cash equivalents) $ 291      
Property and equipment, net 28      
Intangible assets, net 14,310      
Other assets 275      
Short-term liabilities (1,978)      
Other liabilities (1,267)      
Long-term liabilities (3,760)      
Goodwill 889      
Assets and liabilities of the acquired business, net 8,788      
Cash paid during the year for:      
Interest 2 5 6
Income taxes, net 12 27 25
Supplemental disclosure of non-cash investing and financing activities:      
Extinguishments of liabilities credited to shareholder's deficit (see Note 1c)    1,492 1,220
Issuance of shares to service providers and officer       $ 21
v2.4.0.6
GENERAL
12 Months Ended
Dec. 31, 2013
GENERAL [Abstract]  
GENERAL

NOTE 1:      GENERAL

 

  a. SuperCom Ltd. (the "Company") is an Israeli resident company organized in 1988 in Israel. On January 24, 2013 the Company changed its name back to SuperCom Ltd, its original name, from Vuance Ltd. On September 12, 2013, the Company's ordinary shares were approved for listing on the NASDAQ Capital Market and began trading under the ticker symbol "SPCB" on September 17, 2013. Previously, the Company's ordinary shares traded on the OTCQB® electronic quotation service.

 

The Company is a global provider of traditional and digital identity solutions, providing advanced safety, identification, tracking and security products to governments and private and public organizations. The Company provides cutting edge real-time positioning, tracking, monitoring and verification solutions enabled by its PureRF® wireless hybrid suite of products and technologies, all connected to a web-based, secure, proprietary, interactive and user-friendly interface.    The Company offers a wide range of solutions including, national ID registries, e-passports, biometric visas, automated fingerprint identification systems, digitized driver's licenses, and electronic voter registration and election management using the common platform ("MAGNA").  The Company sells its products through marketing offices in the U.S, Tanzania, Panama, Ecuador and Israel.  

 

  b. On December 26, 2013 the Company acquired the SmartID Division of On Track Innovations Ltd. (NASDAQ: OTIV) ("OTI"), consisting of customer contracts, software, other related technologies and IP assets. The Company paid OTI $8.8 million ($10 million less certain price adjustments) at the closing and agreed to make contingent payments of up to $12.5 million pursuant to an earn-out mechanism based on certain performance and other milestones. The SmartID Division has a strong international presence, with a broad range of competitive and well-known e-ID solutions and technology. The acquisition significantly expanded the breadth of the Company's e-ID capabilities globally, while providing it with market and technological experts, together with its ID software platforms and technologies.

 

As of December 31, 2013, the Company's principal activities were conducted mainly through SuperCom Ltd. and Supercom Inc. Two new active wholly owned subsidiaries, SuperCom Tanzania and SuperCom Panama, were acquired in December 2013 as part of the acquisition of the SmartID division. The subsidiaries in Tanzania and Panama provide support and maintenance services to the Company's customers in these countries.

 

  c. Extinguishment of liabilities

 

On November 3, 2010, the Company submitted to the District Court in Petach-Tikva, Israel, a request to summon meetings of creditors of the Company, in order to approve a proposed arrangement between the Company and its creditors (including convertible bond holders) in accordance with Section 350 of the Israeli Companies Law 5759-1999. The proposed arrangement involved an allotment of ordinary shares or warrants to purchase ordinary shares of the Company to certain of its creditors, at a price of $0.38 per ordinary share against 40% of the total outstanding debt to the creditors, to the effect of total satisfaction of the entire debt owed to the Company's creditors (thus forgiving and waiving 60% of the total outstanding debt of the Company).

  

The proposed arrangement was based on the one which was approved by the general meeting of the shareholders dated September 12, 2010. The Company convened the meetings of its creditors to approve the proposed debt arrangement during February and March 2011. On March 15, 2011, the Company filed an application with the Petach-Tikva District Court for the approval of the creditor arrangement.

 

On July 18, 2011, the District Court decided not to approve the Company's application, mainly due to an objection to the proposed arrangement filed by one of the Company's secured creditors, Special Situations Funds ("SSF"), which later assigned its bonds on November 8, 2011 to Mr. Eliyahu Trabelsi (see also Note 12). In February 2012, following the approval of the board of directors, the Company decided to proceed with the arrangement which was approved by its general meeting without further proceeding in the District Court, subject to its creditors agreements.

 

As of December 31, 2010, certain creditors with a total outstanding debt of $271 accepted the Company's debt arrangement proposal. The Company allotted a total of 283,798 warrants to purchase ordinary shares of the Company (see also Note 12e) to those creditors. In accordance with ASC Topic 470-50-40, the Company recorded $124 as a gain from extinguishment of debt based on the difference between the carrying amount of the liabilities extinguished ($271) and the fair value of the warrants allotted ($147), which was credited to additional paid-in capital.

 

During 2011, certain creditors with a total outstanding debt of $3,369 accepted the Company's debt arrangement proposal. The Company allotted a total of 254,558 warrants and 70,588 options (with an exercise price of nil) to purchase ordinary shares of the Company and 3,185,609 ordinary shares of the Company (see also Note 11) to those creditors. In accordance with ASC Topic 470-50-40, the Company recorded $2,149 as a gain on extinguishment of debt based on the difference between the carrying amount of the liabilities extinguished ($3,369) and the fair value of the shares, warrants and options allotted ($1,220), which was credited to additional paid-in capital (see also Note 12).

 

During 2012, certain creditors and convertible bond holders, including Sigma Wave Ltd ("Sigma Wave") and Mr. Eliyahu Trabelsi, accepted the Company's debt arrangement proposal for $3,910 of outstanding debt. The Company allotted to Sigma Wave and Mr. Trabelsi a total of 3,431,800 ordinary shares of the Company (see also Note 11), and granted a former service provider a warrant to purchase 325,753 ordinary shares.

In accordance with ASC Topic 470-50-40, the Company recorded $2,417 as a gain on extinguishment of debt based on the difference between the carrying amounts of the liability extinguished ($3,910) and the fair value of (i) the ordinary shares granted ($1,240), (ii) the warrant granted ($126), and (iii) the amount of liability extinguished on account of shares ($127).

 

  d. Concentration of risk that may have a significant impact on the Company:

 

Throughout the reporting periods the Company derived most of its revenues from one major customer. See also Note 14c.

 

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.

 

v2.4.0.6
SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2013
SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES

NOTE 2:      SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP").

 

  a. Use of estimates:

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to allowance for doubtful accounts and contingencies.

 

  b. Financial statements in U.S. dollars:

 

Most of the revenues of the Company and its subsidiaries are received in U.S. dollars. In addition, a substantial portion of the costs of the Company and its subsidiaries are incurred in U.S. dollars. Therefore, management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate. Thus, the functional and reporting currency of the Company and its subsidiaries is the U.S. dollar.

 

Monetary accounts maintained in currencies other than the U.S. dollar are re-measured into U.S. dollars at the exchange rate prevailing at the end of the reporting period in accordance with provisions of ASC 835-10. All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or financial expenses as appropriate.

 

  c. Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. Material intercompany transactions and balances were eliminated upon consolidation. Material profits from intercompany sales, not yet realized outside the group, were also eliminated.

 

  d. Cash and cash equivalents:

 

The Company considers unrestricted short-term highly liquid investments originally purchased with maturities of three months or less to be cash equivalents.

 

  e. Allowance for doubtful accounts:

  

The allowance for doubtful accounts is determined with respect to specific amounts the Company has determined to be doubtful of collection. In determining the allowance for doubtful accounts, the Company considers, among other things, its past experience with such customers and the information available regarding such customers.

 

  f. Inventories:

 

Inventories are stated at the lower of cost or market value. Inventory write-offs are mainly provided to cover risks arising from slow-moving items or technological obsolescence. Cost is determined as follows:

 

Raw materials, parts and supplies - using the "first in first out" method.

 

Finished products - on the basis of direct manufacturing costs.

 

  g. Property and equipment:

 

Property and equipment are stated at cost, net of accumulated depreciation.

 

Depreciation is computed using the straight-line method, over the estimated useful lives, at the following annual rates:

 

    %
     
Computers and peripheral equipment   33
Office furniture and equipment   6 - 20
Leasehold improvements   Over the shorter of the term of the lease or the life of the asset

 

  h. Impairment of long-lived assets and intangible assets:

 

    The Company's long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

  i. Goodwill:

 

The Company's goodwill reflects the excess of the consideration paid or transferred including the fair value of contingent consideration over the fair values of the identifiable net assets acquired. The goodwill impairment test is performed as follows: An initial qualitative assessment of the likelihood of impairment may be performed. If this step indicates that the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the impairment test is performed.

 

In step one of the impairment test, the Company compares the fair value of the reporting unit to the carrying value of the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the net assets allocated to that unit, goodwill is not impaired, and no further testing is required. If the fair value is less than the carrying value of the reporting unit, then the second step of the impairment test is performed to measure the amount of the impairment.

 

In the second step, the reporting unit's fair value is allocated to all the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that simulates the business combination principles to derive an implied goodwill value. If the implied fair value of the reporting unit's goodwill is less than its carrying value, the difference is recorded as impairment.

 

  j. Accrued severance pay and severance pay fund:

 

The liabilities of the Company for severance pay of its Israeli employees are calculated pursuant to Israel's Severance Pay Law. Employees are entitled to one month's salary for each year of employment, or portion thereof. The Company's liability for all its employees is presented under "accrued severance pay". The Company deposits on a monthly basis to severance pay funds and insurance policies. The value of these policies is presented as an asset on the Company's balance sheet.

 

The deposited funds include accrued income up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the Company's obligation pursuant to Israel's Severance Pay Law or labor agreements.

 

Severance expenses for the years ended December 31, 2013, 2012 and 2011 amounted to $128, $10 and $15, respectively.

 

  k. Revenue recognition:

 

The Company and its subsidiaries generate their revenues from the sale of products, maintenance, royalties and long term contracts (including training and installation).

 

Product sales are recognized in accordance with ASC 605-10, when persuasive evidence of an agreement exists, delivery of the product has occurred or services have been rendered, the fee is fixed or determinable, collectability is reasonably assured, and inconsequential or perfunctory performance obligations remain. If the product requires specific customer acceptance, revenue is deferred until customer acceptance occurs or the acceptance provision lapses.

 

The Company recognized certain long-term contract revenues in accordance with ASC Topic 605-35, "Construction-Type and Production-Type Contracts". Pursuant to ASC Topic 605-35, revenues from these contracts are recognized under the percentage of completion method. The Company measures the percentage of completion based on output or input criteria, such as contract milestones, percentage of engineering completion or number of units shipped, as applicable to each contract. Provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first identified, in the amount of the estimated loss on the entire contract. As of December 31, 2013, no such estimated losses were identified.

 

The Company believes that the use of the percentage of completion method is appropriate, since the Company has the ability, using also an independent subcontractor's evaluation, to make reasonably dependable estimates of the extent of progress made towards completion, contract revenues and contract costs. In addition, contracts executed include provisions that clearly specify the enforceable rights of the parties to the contract, the consideration to be exchanged and the manner and terms of settlement. In all cases, the Company expects to perform its contractual obligations and the parties are expected to satisfy their obligations under the contract.

 

The Company is not obligated to accept returned products or issue credit for returned products, unless a product return has been approved by the Company in advance and according to specific terms and conditions. As of December 31, 2013, the Company had an allowance for customer returns at an insignificant amount.

 

Revenues from maintenance services are recognized over the term of the contracts.

 

The warranty period is usually 12 months. Based primarily on historical experience, the Company does not provide for warranty costs when revenue is recognized, since such costs are not material.

 

The Company is entitled to royalties upon the issuance of certificates. Such royalties are recognized when the sales are reported to the Company (usually on a monthly basis).

 

  l. Research and development costs:

 

Research and development costs (other than software) are expensed as incurred.

 

  m. Income taxes:

 

The Company and its subsidiaries account for income taxes in accordance with ASC Topic 740, "Income Taxes". This Statement prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws, that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

 

The Company accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise's financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition and measurement threshold. The Company's accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2013, 2012 or 2011 financial statements.

 

  n. Concentrations of credit risk:

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash deposits and trade receivables. The Company's trade receivables are derived from sales to limited number of customers located primarily in Eastern Europe, Africa, the United States and Israel. The Company performs ongoing credit evaluations of its customers' financial condition. The allowance for doubtful accounts is determined with respect to specific debts that the Company has determined to be doubtful of collection.

 

Cash and cash equivalents and restricted cash deposits are deposited with major banks in Israel and the United States. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

The Company has no significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

 

  o. Basic and diluted earnings per share:

 

    Basic earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year, plus the dilutive potential of stock options and warrants outstanding during the year using the treasury stock method and the dilutive potential, if any, of convertible bonds using the "if-converted method".

 

The number of potential shares from the conversion of convertible bonds, options and warrants that have been excluded from the calculation were 121,196, 120,489 and 643,220 for the years ended December 31, 2013, 2012 and 2011, respectively.

 

  p. Fair value of financial instruments:

 

At December 31, 2013 and 2012, the carrying amounts of cash and cash equivalents, restricted cash deposits, current trade receivables, other accounts receivable, trade payables and other accounts payable approximate their fair value due to the short-term maturity of such financial instruments.

 

  q. Accounting for share-based compensation:

 

Share-based compensation, including grants of stock options, is recognized in the consolidated statement of operations as an operating expense, based on the fair value of the award on the date of grant. The fair value of stock-based compensation is estimated using an option-pricing model.

 

The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statement of operations.

 

The Company estimates the fair value of employee stock options using a Black-Scholes valuation model. The Company amortizes compensation costs using the graded vesting attribution method over the vesting period, net of estimated forfeitures.

 

  r. Acquisition-related intangible assets

 

The Company accounts for its business combinations in accordance with ASC 805 "Business Combinations" and with ASC 350-20 "Goodwill and Other Intangible Assets" ("ASC 350-20"). ASC 805-10 specifies the accounting for business combinations and the criteria for recognizing and reporting intangible assets apart from goodwill.

 

Acquisition-related intangible assets result from the Company's acquisitions of businesses accounted for under the purchase method and consist of the value of identifiable intangible assets including developed software products, established workforce and trade names, as well as goodwill. Goodwill is the amount by which the acquisition cost exceeds the fair values of identifiable acquired net assets on the date of purchase. Acquisition-related intangible assets are reported at cost, net of accumulated amortization.

 

v2.4.0.6
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
12 Months Ended
Dec. 31, 2013
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES [Abstract]  
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

NOTE 3:      OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

 

    December 31,  
    2013     2012  
    $     $  
             
Prepaid expenses     1,433       138  
Government institutions     1,887       106  
Others     45       67  
                 
      3,365       311  

 

v2.4.0.6
INVENTORIES, NET
12 Months Ended
Dec. 31, 2013
INVENTORIES, NET [Abstract]  
INVENTORIES, NET

NOTE 4:      INVENTORIES, NET

 

    December 31,  
    2013     2012  
    $     $  
             
Raw materials, parts and supplies     687       259  
Finished products     20       21  
                 
      707       280  

 

As of December 31, 2013 and 2012, inventory is presented net of write offs for slow inventory in the amount of approximately $57 and $57, respectively.

 

v2.4.0.6
ACQUISITION
12 Months Ended
Dec. 31, 2013
ACQUISITION [Abstract]  
ACQUISITION

NOTE 5:      ACQUISITION

 

On August 13, 2013, the Company entered into an asset purchase agreement with OTI, to acquire OTI's SmartID Division, including all contracts, software, other related technologies and IP assets. The acquisition closed on December 26, 2013.

 

The Company agreed to pay OTI $10 million and contingent consideration of up to $12.5 million pursuant to an earn-out mechanism based on certain performance and other milestones. Such contingent payments include the net amounts raised by us in future public offerings (if any) as well as the revenues generated from new e-ID projects that will be received either through the assignment of contracts by OTI pursuant to the asset purchase agreement or otherwise following August 13, 2013. Earn-out payments are capped at $7.5 million, and are due and payable annually, for a period of seven (7) years from the date of the agreement. However, the payments of the amounts due and payable pursuant to the earn-out mechanism may be accelerated if the Company receive certain new projects or in the event that the Company sell all or substantially all of the assets or contractual rights of the e-ID activities to a third party.

 

Furthermore, if the Company or any of its affiliates are awarded or otherwise receive orders under certain potential projects that were disclosed to the Company as part of the acquisition, then the gross amount of all potential revenues under all such orders or awards during each of the three 12-month periods following the closing date, will be divided into units of $20 million each, or an award unit, and with respect to each full award unit in each year, the Company agreed to pay OTI $1,667 as additional consideration for the acquisition, payable in accordance with the earn-out mechanism, provided that the aggregate amount of all such additional consideration will not exceed $5 million. In addition, for each award unit received, the period of OTI's earn-out eligibility will be extended by an additional 12 month period.

 

The application of purchase accounting under ASC 805 Business Combinations requires that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed at the acquisition date, with amounts exceeding the fair values being recorded as goodwill.

 

In the allocation process, the valuation of the fair value of acquired assets and assumed liabilities were based on, but not limited to: future expected discounted cash flows for customer contracts and liability for future earn-out, current replacement cost for software and other IP and certain property and equipment, and expected settlement amounts for contingencies.

 

The purchase price allocation for the SmartID division acquisition is provisional. Any change in the fair value of the net assets of the acquired division will be retrospectively applied with changes allocated to goodwill.

 

The following table summarizes the calculation of the acquisition price, including the estimated fair value of the liability for future earn-out as of the acquisition date:

 

Cash paid to OTI upon Closing   $ 8,788  
Contingent consideration:        
Short-term     1,978  
Long-term     3,760  
         
Total fair value of consideration paid   $ 14,526  

 

The following table summarizes the estimated fair values of the acquired assets and assumed liabilities as of the acquisition date:

 

Assets acquired   $  
Inventories     343  
Other current assets     276  
Customer contracts     8,100  
Software and other IP     6,210  
Goodwill     889  
Property and equipment, net     28  
Total assets acquired     15,846  
Liabilities assumed        
Other current liabilities     1,320  
Total liabilities assumed     1,320  
Net assets acquired     14,526  

 

The customer contracts will be amortized over 8 years according to the economic benefit expected from those customers each period, and the software and other IP will be amortized by the straight-line method over 10 years.

 

The expected intangible assets amortization expenses for the customer contracts and for software and other IP, are as follows:

 

    $  
2014     1,580  
2015     1,583  
2016     1,601  
2017     1,620  
2018     1,640  
2019     1,660  
2020     1,681  
2021     1,703  
2022-2023     621  

 

v2.4.0.6
PROPERTY AND EQUIPMENT, NET
12 Months Ended
Dec. 31, 2013
PROPERTY AND EQUIPMENT, NET [Abstract]  
PROPERTY AND EQUIPMENT, NET

NOTE 6:      PROPERTY AND EQUIPMENT, NET

 

    December 31,  
    2013     2012  
    $     $  
Cost:            
                 
Computers and peripheral equipment     375       274  
Office furniture and equipment     214       198  
Leasehold improvements     43       29  
      632       501  
Accumulated depreciation:                
Computers and peripheral equipment     279       253  
Office furniture and equipment     148       143  
Leasehold improvements     29       12  
      456       408  
Depreciated cost     176       93  

 

Depreciation expenses for the years ended December 31, 2013, 2012 and 2011, were $48, $32 and $28, respectively.

 

v2.4.0.6
BANK CREDIT
12 Months Ended
Dec. 31, 2013
BANK CREDIT [Abstract]  
BANK CREDIT

NOTE 7:       BANK CREDIT

 

  a. On February 10, 2011 the Company received a $100 credit line from an Israeli bank.. As of December 31, 2012, the entire amount was utilized. As of December 31, 2013 no funds were drawn from the credit line.

 

  b. Regarding guarantees and liens - see Note 9b.

 

v2.4.0.6
ACCRUED EXPENSES AND OTHER LIABILITIES
12 Months Ended
Dec. 31, 2013
ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract]  
ACCRUED EXPENSES AND OTHER LIABILITIES

NOTE 8:      ACCRUED EXPENSES AND OTHER LIABILITIES

 

    December 31  
    2013     2012  
    $     $  
             
Liabilities related with the Smart ID acquisition     2,833       -  
Accrued marketing expenses     284       -  
Legal service providers     201       69  
Other accrued expenses     318       321  
                 
      3,636       390  

 

v2.4.0.6
COMMITMENTS AND CONTINGENT LIABILITIES
12 Months Ended
Dec. 31, 2013
COMMITMENTS AND CONTINGENT LIABILITIES [Abstract]  
COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 9:      COMMITMENTS AND CONTINGENT LIABILITIES

 

  a. Lease commitments:

 

The Company's facilities and those of certain subsidiaries are rented under several operating lease agreements for periods ending 2015. The monthly lease amount, including management fees of the leased property, is approximately $63.

 

Future minimum lease commitments under non-cancelable operating leases for the years ended December 31, are as follows:

 

2014   $ 552  
2015     567  
    $ 1,119  

 

  b. Guarantees, indemnity and liens:

 

  1. The Company issued a bank guarantee of up to NIS 510 ($147 as of December 31, 2013) to the owners of its new offices in Herzliya on February 5, 2014.

 

  2. On April 29, 2012, the Company's board of directors approved the recording of a floating charge on all of the Company's assets in favor of the Company's current and former chairmen of the board of directors, unlimited in amount, in order to secure personal guarantees granted by them in favor of the Company, such as to a bank (see Note 7a) and in order to secure short-term loans that are given by them from time to time to the Company.

 

  c. Litigation:

 

  1.

According to a success based consulting agreement from November 29, 2009, Periscope Finance Ltd. ("Periscope"), committed to assist the Company in finding an investor, With the following payments terms: (i) for any investment of up to $2 million, an amount equal to 6% of the investment amount and (ii) options for 3% of the Company's share capital. (iii) for any amount over $2 million, an additional $25 for any $1 million and an additional options for 1% of the Company's share capital. Periscope claims that they are responsible for an investment by Sigma Wave, the Company's current controlling shareholder. The Company believes that Periscope is not entitled to any payment, since the agreement with Periscope was never approved by the Company's authorized organs and since the acquisition of the Company's convertible bond from a bondholder by Sigma Wave was not "an investment in the company" (the Company was not part of the transaction). In addition, the Company position is that even if the agreement was enforceable, it terminated prior to November 28, 2010, and as such the Sigma transaction (not an investment), occurred after the term of the agreement with Periscope terminated.  In April, 2013, Periscope proposed a settlement agreement, which was presented at the Company's general assembly for approval but this agreement was rejected by the general assembly in its annual meeting on May 9, 2013. This dispute is currently in mediation.

 

  2. As part of the acquisition of the SmartID division of OTI, the Company assumed a dispute with Merwell Inc. ("Merwell"). Merwell has alleged that it has not received the full payment it is entitled to for its services in respect of a drivers' license project. OTI alleged that Merwell breached its commitments under the service agreement and also acted in concert with third parties to damage OTI's business activities. This matter is now subject to an arbitration proceeding.

 

v2.4.0.6
INCOME TAX
12 Months Ended
Dec. 31, 2013
INCOME TAX [Abstract]  
INCOME TAX

NOTE 10:    INCOME TAX

 

  a. Changes in Israeli corporate tax rates:

 

On December 6, 2011, the Law for the Change in the Tax Burden (Legislative Amendments) - 2011 was publicized.  As part of the law, among other things, the Economic Efficiency Law (Legislative Amendments for the Implementation of the Economic Plan for 2009 and 2010) - 2009 and the Income Tax Ordinance (New Version) - 1961 were amended whereby, commencing in 2012, the blueprint for the reduction in the corporate tax rates will be cancelled and the corporate tax rate will be 25%. On July 30, 2013, the Israeli Parliament (the Knesset) passed a law which was designated to increase the tax levy in the years 2013 and 2014. Among other things, the law increases the Israeli corporate tax rate from 25% to 26.5% for the year 2014.

 

  b. Non-Israeli subsidiaries:

 

Non-Israeli subsidiaries are taxed according to the tax laws of the countries in which they are located.

 

  c. Deferred income taxes:

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets of the Company and its subsidiaries are as follows:

 

    December 31,  
    2013     2012  
    $     $  
             
Operating loss carry forwards     12,041       10,631  
Reserves and allowances     691       689  
                 
Net deferred tax assets before valuation allowance     12,732       11,320  
Valuation allowance     (6,619 )     (10,287 )
                 
Net deferred tax assets     6,113       1,033  
                 
Deferred income taxes consist of the following:                
Domestic     6,272       5,632  
Valuation allowance     (159 )     (4,599 )
Net deferred tax assets     6,113       1,033  
                 
Foreign     5,769       4,999  
Valuation allowance     (5,769 )     (4,999 )
                 
      -       -  

 

As of December 31, 2013, the Company and its subsidiaries have provided a valuation allowance of $6,619 in respect of deferred tax assets resulting from tax loss carryforwards and other temporary differences. Management currently believes that since the Company and its subsidiaries had net profits in 2012 and 2013, the deferred tax assets are likely to be realized in the next four years.

 

  d. Carryforward tax losses:

 

SuperCom Ltd. has accumulated losses for tax purposes as of December 31, 2013 of approximately $23,666, which may be carried forward and offset against taxable income in the future for an indefinite period. SuperCom Ltd. also has a capital loss of approximately $15,308, which may be carried forward and offset against capital gains for an indefinite period. Loss carryforwards in Israel are measured in NIS.

 

As of December 31, 2013, SuperCom's subsidiaries in the United States have estimated total available carryforward tax losses of approximately $14,422. In the U.S., tax losses can be carried forward for 20 years. However, utilization of U.S. net operating losses may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. These annual limitations may result in the expiration of net operating losses before utilization. Approximately $3,413 of the carryforward tax losses of the Company's subsidiary in the U.S, is subject to such limitation.

 

  e. SuperCom Ltd has assessments which are considered as final until the tax year ended December 31, 2008.

 

SuperCom's subsidiaries in the United States and Israel have not received final assessments since their incorporation.

 

  f. Income (loss) before income tax consists of the following:

 

    Year ended December 31,  
    2013