SuperCom Announces 2006 Operating Results

QADIMA, Israel, and MCLEAN, Va., March 27 /PRNewswire-FirstCall/ -- SuperCom, Ltd. (OTC Bulletin Board: SPCBF.OB; Euronext: SUP), a provider of incident management and active RFID solutions, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2006.

Fourth Quarter Highlights

Repositioning of the Company to aggressively pursue its Incident Response Management System (IRMS) and Active RFID businesses. During the fourth quarter, the Company took the following actions to allow it to focus on the development of its emerging IRMS and Active RFID businesses:

* Divestment of legacy e-ID Division through OTI transaction. On December 31, 2006, SuperCom sold its legacy e-ID business assets to On Track Innovations for 2,827,200 shares of OTIV common stock. The two companies also entered into a service and supply agreement under which SuperCom will continue to receive revenues from the existing e-ID contracts, with OTIV serving as a subcontractor to SuperCom in the performance of these contracts. * Successful financing. On November 21, 2006, SuperCom raised $3.15 million through the issuance of convertible bonds and warrants. In addition, after the end of the fourth quarter (in January 2007), the Company secured a $2.5 million bank loan. These funds will provide the Company with the necessary capital to accelerate R&D, business development and sales/marketing activities involving its IRMS and Active RFID businesses.

Early IRMS successes: During the fourth quarter, the Company's initial IRMS marketing efforts resulted in the following contracts:

* City of Los Angeles: In November 2006, the Company was awarded an Urban Area Security Initiative contract by the City of Los Angeles to deploy mobile credentialing and verification units for the LA Department of General Services -- Office of Public Safety, the LA City Office Personnel and the LA Police Department (Mobile Command Post Unit). * Two Urban County Governments in Northeastern US: In November 2006, two county governments with a combined population of 1.3 million people began deploying SuperCom's IRMS solution as a tool for first responders and for maintaining order, accountability and safety in incident circumstances. Fourth Quarter Operating Results

Revenues for the quarter ended December 31, 2006 totaled $2.4 million, representing a 48% increase from $1.6 million in the fourth quarter of 2005.

During the quarter, the Company also recorded a capital gain of $10.5 million associated with the sale of the assets of its e-ID Division to On Track Innovations Ltd. ("OTI") in consideration for 2,827,200 restricted ordinary (common) shares of OTI.

Net income for the fourth quarter of 2006, including the abovementioned capital gain, approximated $7.9 million, or $0.32 per diluted share, compared with a net loss of $966,000, or $0.05 per diluted share, in the fourth quarter of 2005.

Results for Year Ended December 31, 2006

Revenues for the full year 2006 approximated $8.8 million, an increase of 4% when compared with $8.5 million in 2005 revenues. Gross margin for the year improved to 60% of revenues, compared with 46% in 2005. Net income for the year approximated $5.4 million, or $0.22 per diluted share, reflecting the capital gain associated with the OTI sale as described above. This compared with a net loss in 2005 of approximately $4.0 million, or $0.21 per diluted share.

Management Comments

"The fourth quarter was a period of significant strategic progress as we repositioned the Company and began to ramp up our IRMS solutions and Active RFID tracking businesses," stated Eyal Tuchman, Chief Executive Officer of SuperCom Ltd. "The transactions that we completed during the past several months have transformed our balance sheet and business model dramatically and will provide the funds we need to build both of these businesses to their full potential." As of December 31, 2006, the Company owned 2,827,200 restricted shares of OTIV ordinary (common) stock. OTIV ordinary shares closed at $7.27 per share on the Nasdaq Stock Market on March 26, 2007.

"To date, we have achieved major IRMS wins in Columbus, Ohio; Los Angeles, California; and two large counties in the northeastern region of the US, validating the concept of our system and confirming that its feature set meets the needs of our target markets -- first responders and government agencies at the municipal, county, regional and state levels," continued Tuchman. "In parallel, we have launched initial sales and marketing activities for Active RFID, a superb solution for indoor and outdoor asset management that can be offered either on a stand-alone basis or as a complement to IRMS deployments."

"We are excited that new U.S. federal budget allocations have transformed the homeland security and disaster preparedness markets into large opportunities. We believe the strong first-mover advantage that we have established with our IRMS and Active RFID solutions will position SuperCom to benefit from these opportunities and thereby to create significant value for our shareholders," concluded Tuchman.

Investor Conference Call

SuperCom will host an investor conference call to discuss its 2006 operating results tomorrow, Wednesday, March 28, 2007 at 10:30 a.m. EDT (4:30 p.m. Israel Time). During the call, Mr. Eyal Tuchman, CEO, and Mr. Yaron Shalom, CFO, will discuss SuperCom's fourth quarter and year-end results and the Company's strategies.

To participate in the conference call, please call one of the following numbers five minutes before 10:30 a.m. EDT (4:30 p.m. Israel Time):

In Israel: 03-9180610 In the US (toll free): 1-888-668-9141 In the UK (toll free): 0-800-051-8913

A replay of the teleconference will be available for a one-week period from 12:00 p.m. Eastern Time (6:00 p.m. Israel Time) on March 28, 2007 until midnight (EDT) on April 4, 2007. To access the replay, please call one of the following numbers:

In Israel: 03- 9255937 In the US (toll free): 1-888-254-7270 In the UK (toll free): 0-800-028-6837 About SuperCom Ltd.

SuperCom Ltd. provides innovative incident management and active RFID solutions to the public safety, commercial and government sectors. SuperCom's Incident Response Management System (IRMS) is the industry's most comprehensive mobile credentialing and access control system, as required by Homeland Security and other initiatives. Active RFID is a complete, cost-effective solution for the continuous tracking of individuals and assets. For more information, visit the Company's websites at http://www.supercomgroup.com/, http://www.supercom-inc.com/ and http://www.pure-rf.com/.

Safe Harbor

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded or followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. Forward-looking statements in this release also include statements about business and economic trends. Investors should also consider the areas of risk described under the heading "Forward Looking Statements" and those factors captioned as "Risk Factors" in the Company's periodic reports under the Securities Exchange Act of 1934, as amended, or in connection with any forward-looking statements that may be made by the Company.

The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by the investment community.

Contact: In Israel: Alex Somech Tel: [phone] Fax: [phone] Mobile: [phone] E-mail:[e-mail] North America: RJ Falkner & Company, Inc., Investor Relations Counsel Tel: [phone] E-mail: [e-mail] BALANCE SHEETS U.S. dollars in thousands December 31, December 31, 2005 2006 Unaudited Unaudited ASSETS CURRENT ASSETS: Cash and cash equivalents $2,294 $2,444 Short-term deposit 1,088 859 Marketable securities 650 11,077 Trade receivables, net of doubtful accounts 1,053 2,625 Other accounts receivable and prepaid expenses 733 717 Inventories 2,205 270 Total current assets 8,023 17,992 INVESTMENTS AND LONG-TERM RECEIVABLES: Investment in restricted marketable securities of other company - 4,431 Long term trade receivables 209 79 Investment in an affiliated company 275 - Severance pay fund 492 239 Total investments and long-term receivables 976 4,749 PROPERTY AND EQUIPMENT, NET 3,210 160 INTANGIBLE ASSETS AND DEFERRED CHARGES 67 197 TOTAL ASSETS $12,276 $23,098 CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, December 31, 2005 2006 Unaudited Unaudited LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term bank credit and current maturities of long-term loan $855 $668 Trade payables 770 823 Employees and payroll accruals 322 533 Accrued expenses and other liabilities 1,271 3,428 Total current liabilities 3,218 5,452 LONG-TERM LIABILITIES: Convertible bonds - 2,255 Long-term loan, net of current maturities 195 67 Accrued severance pay 616 323 Total long-term liabilities 811 2,645 COMMITMENTS AND CONTINGENT LIABILITIES Shareholders' equity 8,247 15,001 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,276 $23,098 CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands (except share data) Year ended Three months ended December 31, December 31, 2005 2006 2005 2006 Unaudited Revenues $8,462 $8,795 $1,605 $ 2,383 Cost of revenues 4,293 3,494 725 1,147 Inventory write-off 287 - 287 - Gross profit 3,882 5,301 593 1,236 Operating expenses: Research and development 1,182 1,362 224 356 Selling and marketing 3,003 5,619 553 2,030 General and administrative 2,968 2,737 739 902 Restructuring expenses 496 - - - Litigation settlement expenses 129 108 - 43 Total operating expenses 7,778 9,826 1,516 3,331 Capital gain from the sale of the e-ID Division - 10,536 - 10,536 Operating income (loss) (3,896) 6,011 (923) 8,441 Financial expenses, net (25) (204) (19) (120) Other expenses, net (30) (367) (24) (372) Net Income (loss) $(3,951) $ 5,440 $(966) $7,949 Basic net income (loss) per share $(0.21) $0.23 $(0.05) $0.34 Diluted net income (loss) per share $(0.21) $0.22 $(0.05) $0.32 Weighted average number of Ordinary shares used in computing basic net income (loss) per share 18,563,943 23,348,289 19,370,871 23,447,379 Weighted average number of Ordinary shares used in computing diluted net income (loss) per share 18,563,943 24,313,087 19,370,871 24,550,886 CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Three months Year ended ended December 31, December 31, 2005 2006 2005 2006 Unaudited Cash flows from operating activities: Net Income (loss) ($3,951) $5,440 ($966) $7,949 Adjustments to reconcile net Income (loss) to net cash used in operating activities: Depreciation and amortization 772 355 16 88 Accrued severance pay, net (12) 33 (1) 17 Deferred stock compensation 55 361 12 154 Capital gain from the sale of the e-ID Division - (10,536) - (10,536) Amortization of discount on convertible bonds - 30 - 30 Amortization of deferred charges - 6 - 6 Write down of loan receivable - 275 - 275 Decrease (increase) in trade receivables 448 (1,442) 118 350 Decrease in other accounts receivable and prepaid expenses 517 254 83 90 Decrease (increase) in inventories (40) 212 192 128 Increase (decrease) in trade payables (365) 53 144 (129) Increase (decrease) in employees and payroll accruals (35) 211 20 120 Increase (decrease) in accrued expenses and other liabilities (407) 1,586 186 405 Exchange differences on principle of long-term loan - 12 - 3 Others - 8 - 8 Net cash used in operating activities (3,018) (3,142) (196) (1,042) Cash flows from investing activities: Purchase of property and equipment (315) (93) (40) (1) Proceeds (Investment) in short-term deposits, net 394 229 (14) 67 Proceeds (Investment) in marketable Securities, net (650) 650 (650) - Amounts carried to deferred charges - (163) - (163) Sale of the e-ID Division - (52) - (52) Net cash provided by (used in) investing activities (571) 571 (704) (149) Cash flows from financing activities: Short-term bank credit, net 120 (307) 139 3 Proceeds from long-term loan 500 204 - - Proceeds from issuance of convertible bonds and warrants, net - 3,139 - 3,139 Issuance of share capital through a private placement, net of issuance costs 2,539 (183) 2,752 (3) Principle payment of long-term loan (592) (224) (107) (67) Proceed from exercise of warrants and options, net 422 92 - 54 Net cash provided by (used in) financing activities 2,989 2,721 2,784 3,126 Increase (decrease) in cash and cash equivalents (600) 150 1,884 1,935 Cash and cash equivalents at the beginning of the period 2,894 2,294 410 509 Cash and cash equivalents at the end of the period $2,294 $2,444 $2,294 $2,444 Supplemental disclosure of cash flows information: Sale of the e-ID Division Assets and Liabilities of the division, at the date of sale: Working Capital, net - 2,073 - 2,073 Fixed assets, net - 2,800 - 2,800 Intangible assets - 47 - 47 Fair value of Marketable securities received as proceeds, net - (15,508) - (15,508) Capital gain from the sale of the e-ID Division: - 10,536 - 10,536 - (52) - (52) Cash paid during the period for: Interest $87 $76 $20 $19 Supplemental disclosure of non-cash investing activities: Accrued expenses related to issuance of shares $109 $19 $109 - Issuance of warrants to service provider - $40 - $40