<DOCUMENT>
<TYPE>20FR12G
<SEQUENCE>1
<FILENAME>c32537_20fr12g.txt
<TEXT>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

(Mark One)

[x] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934

                                       OR

[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended ______________

                                       OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from __________ to __________

                         Commission file number ________

                                  SUPERCOM LTD.
             (Exact name of Registrant as specified in its charter)

                                 NOT APPLICABLE
                 (Translation of Registrant's Name into English)

                                     ISRAEL
                 (Jurisdiction of incorporation or organization)

                                MILLENNIUM BLDG.
                            3 TIDHAR ST., P.O.B. 2094
                              RAANANA 43665 ISRAEL
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.
                                      NONE.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                               TITLE OF EACH CLASS
                               -------------------
                            ORDINARY SHARES, NIS 0.01

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
                                      NONE.

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 13(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such reporting
requirements for the past 90 days.
                       Yes [_] No [ ] Not applicable [X].

Indicate by check mark which financial statement item the registrant has elected
to follow.
                            Item 17 [ ] Item 18 [X]

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
                                 Yes [_] No [_]


<PAGE>

                                TABLE OF CONTENTS

PART I

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                          4
   Directors and Senior Management.............................................4
   Advisors....................................................................4
   Auditors....................................................................4
OFFER STATISTICS AND EXPECTED TIMETABLE                                        5
KEY INFORMATION...                                                             5
   Currency and Exchange Rates.................................................5
   Selected Financial Data.....................................................5
   Capitalization and Indebtedness.............................................6
   Reasons for the Offer and Use of Proceeds...................................7
   Risk Factors................................................................7
INFORMATION ON THE CORPORATION                                                15
   History and Development of the Corporation.................................15
   Business Overview..........................................................16
   Organizational Structure...................................................28
   Property, Plants and Equipment.............................................28
OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  30
   Operating Results..........................................................32
   Liquidity and Capital Resources............................................35
   Research and Development...................................................37
   Trend Information..........................................................37
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    40
   Directors and Senior Management............................................40
   Compensation...............................................................41
   Board Practices............................................................42
   Employees..................................................................44
   Share Ownership............................................................45
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             46
   Major Shareholders.........................................................46
   Related Party Transactions.................................................47
   Interests of Experts and Counsel...........................................48
FINANCIAL INFORMATION                                                         48
   Consolidated Statements and Other Financial Information....................48
   Significant Changes........................................................49
THE OFFER AND LISTING                                                         49
   Offer and Listing Details..................................................49
   Plan of Distribution.......................................................51
   Markets....................................................................51
   Selling Shareholders.......................................................51
   Dilution...................................................................51
   Expenses of the Issue......................................................51
ADDITIONAL INFORMATION                                                        51
   Share Capital..............................................................51
   Memorandum and Articles of Association.....................................52
   Material Contracts.........................................................56
   Exchange Controls..........................................................56
   Taxation...................................................................56
   Dividends and Paying Agents................................................60
   Statement by Experts.......................................................61
   Documents On Display.......................................................61
   Subsidiary Information.....................................................61
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                    62


                                       i
<PAGE>

   Quantitative and Qualitative Information about Market Risk.................62
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                        62
FINANCIAL STATEMENTS                                                          62
EXHIBITS                                                                      99


                                       ii
<PAGE>

                    NOTE REGARDING FORWARD-LOOKING STATEMENTS

         The Securities and Exchange Commission encourages companies to disclose
forward-looking  information so that investors can better understand a company's
future  prospects  and make informed  investment  decisions.  This  Registration
Statement on Form 20-F contains  such  "forward-looking  statements"  within the
meaning of the Private  Securities  Litigation Reform Act of 1995. Words such as
"anticipate,"  "estimate," "expects," "projects," "intends," "plans," "believes"
and words and terms of similar  substance used in connection with any discussion
of future  operating  or  financial  performance  may  identify  forward-looking
statements. All forward-looking statements are management's present expectations
of future events and are subject to a number of factors and  uncertainties  that
could cause  actual  results to differ  materially  from those  described in the
forward-looking  statements.  The factors  discussed below under "Risk Factors,"
among  others,  could  cause  actual  results  to differ  materially  from those
described in the forward-looking  statements.  Stockholders are cautioned not to
place undue reliance on the forward-looking statements,  which speak only of the
date of this  Registration  Statement.  We are not  under  any  obligation,  and
expressly  disclaim  any  obligation,  to update  or alter  any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
All  subsequent  forward-looking  statements  attributable  to us or any  person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section.

         In this Form 20-F, all references to "SuperCom" "we," "us" or "our" are
to SuperCom Ltd, a company organized under the laws of the State of Israel,  and
its subsidiaries.

                 In this annual report, unless otherwise specified or unless the
context  otherwise  requires,  all  references  to "$" or "dollars"  are to U.S.
dollars  and all  references  to "NIS"  are to New  Israeli  Shekels.  Except as
otherwise  indicated,  the  financial  statements of and  information  regarding
SuperCom are presented in U.S. dollars.


                                      iii
<PAGE>

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

A.  DIRECTORS AND SENIOR MANAGEMENT

         Our senior management and directors as of the filing date of this
Registration Statement are listed below.

<TABLE>
<CAPTION>
NAME                                        POSITION                                     BUSINESS ADDRESS
------------------------------- ----------------------------------------- --------------------------------------------
<S>                             <C>                                                <C>
Senior Management
------------------------------- ----------------------------------------- --------------------------------------------
 Avi Schechter                     President, Chief Executive Officer                  Millennium Bldg.
                                                                                   3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
 Eli Basson                        Vice President IPS (Int'l Project                   Millennium Bldg.
                                           Solutions) Division                     3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
 Eyal Tuchman                   Vice President, Chief Financial Officer                Millennium Bldg.
                                                                                   3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
DIRECTORS
------------------------------- ----------------------------------------- --------------------------------------------
  Eli Rozen                      Chairman of the Board and Board Member                Millennium Bldg.
                                                                                   3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
  Avi Landman                                  Board Member                            Millennium Bldg.
                                                                                   3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
  Avi Elkind                                   Board Member                            Millennium Bldg.
                                                                                   3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
  Menahem Meron                                Board Member                            Millennium Bldg.
                                                                                   3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
  Ester Korren                                 Board Member                            Millennium Bldg.
                                                                                   3 Tidhar St., P.O.B. 2094
                                                                                     Raanana 43665 ISRAEL
------------------------------- ----------------------------------------- --------------------------------------------
</TABLE>


B.  ADVISORS

         Our legal counsel in the United States is Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., 666 Third Avenue, New York, New York 10017. Our legal
counsel in Israel is Yossi Avraham & Co., 3 Daniel Frisch St., 64731 Tel-Aviv,
Israel.

C.  AUDITORS

         Our auditors since the year ended December 31, 1998, has been Kost,
Forer, Gabbay & Kasierer, a member of Ernst & Young Global, 3 Aminadav St.,
Tel-Aviv 67067 Israel.


                                       4
<PAGE>

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE .

         Not Applicable.

ITEM 3.  KEY INFORMATION.

CURRENCY AND EXCHANGE RATES

         We incur expenses for our operations in Israel in New Israeli Shekels
(NIS) and translate these amounts into United States dollars for purposes of
reporting consolidated results. On December 31, 2003, the exchange rate between
the NIS and the U.S. dollar was NIS 4.379 = US$ 1.00 and the exchange rate
between the NIS and the euro was NIS 5.5331 = 1.00 euro. The following table
shows for the periods and dates indicated, certain information concerning the
representative US$ exchange rate for translating NIS as determined by the Bank
of Israel for the years ended December 31, 1999 through 2003.

                 Exchange Rate
     Year      At End of Period     Average Rate (1)     High     Low
     ----      ----------------     ----------------     ----     ---
     1999            4.15                 4.14           4.29     4.01
     2000            4.04                 4.08           4.20     3.97
     2001            4.416                4.205          4.416    4.041
     2002            4.737                4.738          4.991    4.437
     2003            4.379                4.5483         4.924    4.283

(1) The average of the daily exchange rates during the year.

The following table shows the high and low exchange rates for the previous six
months:

        PERIOD          HIGH      LOW
        ------          ----      ---
       Dec. 2003        4.441    4.352
       Jan. 2004        4.483    4.371
       Feb. 2004        4.493    4.4295
       Mar. 2004        4.535    4.483
       Apr. 2004        4.599    4.515
       May  2004        4.634    4.555

On June 1, 2004, the average exchange rate between the NIS and the U.S. dollar
was NIS 4.5652= $1 US.

A.  SELECTED FINANCIAL DATA

         The following selected consolidated financial data as of December 31,
2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003 have been
derived from our audited consolidated financial statements. These financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP, and audited by Kost, Forer,
Gabbay & Kasierer, a member of Ernst & Young Global. The consolidated selected
financial data as of December 31, 1999, 2000 and 2001 and for the years ended
December 31, 1999 and 2000 have been derived from other consolidated financial
statements not included in this Form 20-F and have also been prepared in
accordance with U.S. GAAP and audited by Kost, Forer, Gabbay & Kasierer, a
member of Ernst & Young Global. The consolidated selected financial data as of
March 31, 2003, and 2002 are unaudited. The selected consolidated financial data
set forth below should be read in conjunction with and are qualified by
reference to "Item 5, Operating and Financial Review and Prospects" and the
consolidated financial statements and notes thereto and other financial
information included elsewhere in this Form 20-F.


                                       5
<PAGE>

<TABLE>
<CAPTION>
SUMMARY OF CONSOLIDATED FINANCIAL DATA                          YEAR ENDED DECEMBER 31,                THREE MONTHS ENDED
                                                                -----------------------                    MARCH 31,
                                                             (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
                                                         *1999      *2000     *2001    2002      2003         2003      2004
SUMMARY OF STATEMENT OF OPERATIONS:
<S>                                                  <C>       <C>        <C>       <C>     <C>             <C>       <C>
Revenues                                                 3,894      3,062     6,889   8,027     7,244        2,884     1,311
Cost of Revenues                                         1,956      1,756     2,574   1,830     3,102        1,057       826
                                                         -----      -----     -----   -----     -----        -----       ---
Gross Profit                                             1,938      1,306     4,315   6,197     4,142        1,827       485
                                                         -----      -----     -----   -----     -----        -----       ---
Operating Expenses:
   Research and Development                              1,975      2,477     1,225   1,334       918          236       194
   Selling and Marketing                                 1,588      4,180     4,628   2,828     3,026        1,287       557
   General and Administrative                            2,990      3,385     3,604   1,988     1,829          501       503
                                                         -----      -----     -----   -----     -----          ---       ---
Total Operating Expenses                                 6,553     10,042     9,457   6,150     5,773        2,024     1,254
                                                         -----     ------     -----   -----     -----        -----     -----

Operating Income  (Loss)                               (4,615)    (8,736)   (5,142)      47   (1,631)        (197)     (769)
Financial Income (Expenses), Net                           545        744       123    (35)     (233)         (15)       (7)
OTHER INCOME (EXPENSES), NET                               (5)    (1,688)     (241)   6,203      (83)         (30)       (4)
                                                           ---    -------     -----   -----      ----         ----       ---
Income Loss before Taxes on Income                     (4,075)    (9,680)   (5,260)   6,215   (1,947)        (242)     (780)
Income Taxes                                                 6          2        --      --        --           --        --
Equity in Earnings (Loss) of an Affiliated
Company, Net of taxes                                       18         19        --    (38)      (48)           --        --
                                                            --         --        --    ----      ----           --        --

Net Income (Loss) from continuing operations           (4,063)    (9,663)   (5,260)   6,177   (1,995)        (242)     (780)
                                                       =======    =======   =======   =====   =======        =====     =====
Loss from discontinued operations                           97      1,276     1,288     427        --           --        --

Net income (loss)                                    $ (4,160) $ (10,939) $ (6,548) $ 5,750 $ (1,995)       $(242)    $(780)
                                                     ========= ========== ========= ======= =========       ======    ======

PER SHARE DATA:
Basic and Diluted earning (loss) from continuing
operations                                              (0.34)    $(0.76)   $(0.42)   $0.49   $(0.15)      $(0.02)   $(0.06)

Basic and Diluted earning (loss) from discontinued
operations                                             $(0.01)     $(0.1)    $(0.1) $(0.04)       $--          $--       $--
Basic and Diluted earning (loss) per share
                                                       $(0.35)    $(0.86)   $(0.52)   $0.45   $(0.15)      $(0.02)   $(0.06)


SUMMARY OF BALANCE SHEET DATA:
Cash and Cash Equivalents                                5,295      8,565       274   4,567     1,912        3,835     1,072
Bank deposit                                            13,068         --       100             1,196          791     1,205
Marketable debt securities                                  --         --        --     609       117          274         9

Trade receivables                                          225        161       573   2,202     1,808        3,686     1,643
Inventories                                              1,079      2,832     3,777   3,144     3,236        2,699     2,886
Total Current Assets                                    20,883     12,887     6,006  11,092     9,630       11,581     7,751
TOTAL ASSETS                                            21,941     15,219     8,531  13,756    12,434       14,154    10,665
Total Current Liabilities                                1,583      4,016     4,226   3,468     4,199        4,176     3,243
Accrued Severance Pay                                      705        858       442     362       436          350       444
TOTAL SHAREHOLDERS' EQUITY                              19,653     10,345     3,863   9,497     7,612        9,280     6,860
</TABLE>

B.  CAPITALIZATION AND INDEBTEDNESS

         We have an authorized capital consisting of 26,500,000 ordinary shares,
NIS 0.01 par value ("Ordinary Shares").  As of March 31, 2004, we had 12,966,872
Ordinary Shares outstanding.


                                       6
<PAGE>

         The table  below sets forth our total  indebtedness  in US dollars  and
capitalization  as  of  December  31,  2003.  You  should  read  this  table  in
conjunction with the audited consolidated  financial statements and accompanying
notes, included in this Form 20-F.

                                           OUTSTANDING AS AT DECEMBER 31, 2003
                                               (IN THOUSANDS OF US DOLLARS)
                                         ---------------------------------------
Debt                                                                      $4,822
   Guaranteed                                                                  0
   Unguaranteed                                                                0
   Secured                                                                 2,318
   Unsecured                                                               2,504
Shareholders' Equity

     Ordinary Shares                                                          40
     (Authorized: 26,500,000)............
     Warrants............................
     Additional paid-in-capital..........                                 25,814
     Deferred compensation...............
                                         ---------------------------------------
     Deficit (as of December 31, 2003)...                               (18,242)
                                         ---------------------------------------
Total Capitalization.....................                                  7,612
                                         =======================================


C. REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not Applicable.

D.  RISK FACTORS

         An  investment  in the  Ordinary  Shares  should be  considered  highly
speculative.  In addition  to other  information  in this Form 20-F,  you should
carefully consider the following factors when evaluating us and our business.

WE HAVE A HISTORY OF  OPERATING  LOSSES AND  NEGATIVE  CASH FLOWS AND MAY NOT BE
PROFITABLE IN THE FUTURE.

         We have incurred  substantial  losses and negative cash flows since our
inception.  We  had an  accumulated  deficit  of  approximately  $18,242,000  at
December 31, 2003. Although we generated net income of approximately  $5,750,000
for the year ended  December 31, 2002,  such net income was generated  primarily
from  the sale of our  equity  ownership  in  InkSure.  We  incurred  losses  of
approximately  $1,995,000  and  $6,548,000 for the years ended December 31, 2003
and 2001, respectively. We expect to have net operating losses and negative cash
flows for the foreseeable  future,  and expect to spend  significant  amounts of
capital  to  enhance  our  products  and  services,  develop  further  sales and
operations,  and  fund  expansion.  As  a  result,  we  will  need  to  generate
significant   revenue   to  achieve   profitability.   Even  if  we  do  achieve
profitability,  we may not be able to sustain  or  increase  profitability  on a
quarterly or annual basis.

         Part of our operating  expense  levels are based on internal  forecasts
for future demand and not on firm customer orders for products or services.  Our
results may be affected by fluctuating demand for our products and services from
one  quarter to the next and by  increases  in the costs of  components  and raw
materials acquired from suppliers.

WE WILL  FACE A NEED  FOR  ADDITIONAL  CAPITAL  AND  MAY  NEED  TO  CURTAIL  OUR
OPERATIONS IF IT IS NOT AVAILABLE.

         We believe that our current cash and cash  equivalents,  in addition to
our revenues generated from our business operations,  will satisfy our operating
capital  needs  for at  least  the  next 12  months  based  upon  our  currently
anticipated  business  activities.  However, we may need additional capital even
within the next 12 months if we undertake  large projects or have a delay in one
of our  anticipated  projects.  Our need for  additional  capital to finance our
operations and growth will be greater should, among other things, our revenue or
expense estimates prove to be incorrect. We may not be able to obtain additional
financing in sufficient amounts or on acceptable terms when needed,  which would
force us to curtail our  operations  or not pursue  opportunities  which present
themselves.

WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS,
AND THE REDUCTION OF SALES TO ANY ONE OF THOSE CUSTOMERS COULD ADVERSELY  IMPACT
OUR OPERATING RESULTS BY CAUSING A DROP IN REVENUES.


                                       7
<PAGE>

         We depend on a limited number of customers for a substantial portion of
our revenue. During the years ended December 31, 2003, 2002 and 2001, we derived
66%, 73%, and 70%,  respectively,  of our consolidated net revenue for that year
from four  individual  customers.  In 2003,  our customers  Ministry of Internal
Affairs of  Ukraine,  Intercomsoft  China  travel CHK and China  travel  holding
accounted  for 27%,  16%  12%and  11%,  respectively,  of our  consolidated  net
revenues. A substantial  reduction in sales to any of our significant  customers
would  adversely  affect our business unless we were able to replace the revenue
we received from those customers, which replacement we may not be able to do.

         In  April  2004,  we  were  informed  by the  International  Commercial
Arbitration   Court  at  the   Ukrainian   Chamber  of  Commerce   and  Industry
("Arbitration  Court") that the Department for Resources  Supply of the Ministry
of Internal  Affairs of Ukraine (the  Ministry)  had filed with the  Arbitration
Court a statement of claim to declare that  Contract No.  10/82,  dated April 9,
2002  between  SuperCom  and the  Ministry as void due to defaults in the tender
proceedings  under  which the  contract  had been  awarded to  SuperCom.  We are
currently  examining  this claim and the  options  available  to us. We strongly
believe  that the claim has no merits  and we intend to  vigorously  defend  the
validity of the contract. We are not anticipating any revenues from this project
during 2004.

WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS,
AND THE LOSS OF ANY ONE OF THOSE CUSTOMERS COULD ADVERSELY  IMPACT OUR OPERATING
RESULTS BY CAUSING A DROP IN REVENUES.

         We depend on a limited number of customers for a substantial portion of
our revenue.  The  termination or non-renewal of any  significant  contract upon
expiration,  would adversely  affect our business unless we were able to replace
the revenue we received from those  customers,  which  replacement we may not be
able to do.

OUR RELIANCE ON THIRD PARTY  TECHNOLOGIES,  RAW MATERIALS AND COMPONENTS FOR THE
DEVELOPMENT  OF SOME OF OUR  PRODUCTS  AND OUR  RELIANCE  ON THIRD  PARTIES  FOR
MANUFACTURING  MAY DELAY  PRODUCT  LAUNCH,  IMPAIR OUR  ABILITY  TO DEVELOP  AND
DELIVER PRODUCTS OR HURT OUR ABILITY TO COMPETE IN THE MARKET.

         Most of our products integrate  third-party  technology that we license
and/or raw materials  and  components  that we purchase or otherwise  obtain the
right  to  use,   including:   operating  systems,   microchips,   security  and
cryptography  technology for card operating systems, which prevents unauthorized
parties from tampering  with our cards,  and dual  interface  technology,  which
enables cards to operate in both contact and  contactless  mode.  Our ability to
purchase and license new  technologies  and components from third parties is and
will continue to be critical to our ability to offer a complete line of products
that meets customer needs and technological requirements.  We may not be able to
renew our existing licenses or be able to purchase  components and raw materials
on favorable  terms, or at all. If we lose the rights to a patented  technology,
we may  need  to  stop  selling  or may  need  to  redesign  our  products  that
incorporate that technology, and we may lose the potential competitive advantage
such  technology  gave us. In addition,  competitors  could obtain  licenses for
technologies for which we are unable to obtain  licenses,  and third parties may
develop  or enable  others to develop a similar  solution  to  security  issues,
either of which events could adversely  affect our results of operations.  Also,
dependence  on the  patent  protection  of third  parties  may not afford us any
control  over the  protection  of the  technologies  upon which we rely.  If the
patent protection of any of these third parties were compromised, our ability to
compete in the market also would be impaired.

DELAYS IN  DELIVERIES  FROM OUR  SUPPLIERS  OR  DEFECTS  IN GOODS OR  COMPONENTS
SUPPLIED BY OUR VENDORS COULD CAUSE OUR REVENUES AND GROSS MARGINS TO DECLINE.

         We rely on a limited  number of vendors for certain  components for the
products we are supplying.  Any undetected  flaws in components  supplied by our
vendors could lead to  unanticipated  costs to repair or replace these parts. We
currently  purchase  some  of our  components  from a  single  supplier  to take
advantage of volume  discounts which presents a risk that the components may not
be available in the future on commercially  reasonable terms or at all. Although
we believe that there are  additional  suppliers  for the equipment and supplies
that  we  require,  we may not be able  to  make  such  alternative  arrangement
promptly.  If one of our suppliers were unable to meet our supply demands and we
could not  quickly  replace  the  source of  supply,  it could  cause a delay of
receipt of revenues and damage to our business reputation.

OUR INABILITY TO MAINTAIN AND DEVELOP NEW STRATEGIC  RELATIONSHIPS  WITH PRIMARY
INTEGRATORS FOR GOVERNMENTAL  SECURED ID AND PASSPORT  PROJECTS COULD IMPACT OUR
ABILITY TO OBTAIN OR SELL OUR  PRODUCTS,  AND PREVENT US FROM  GENERATING  SALES
REVENUES.

         We obtain and sell many of our products through strategic  alliance and
supplier  agreements  in  which we act as  subcontractors  or  suppliers  to the
primary integrator or contractor, including China Travel Service (Holdings) H.K.
Ltd. in Hong Kong for the Hong Kong  passport and China  re-entry  card projects
and Intercomsoft in Moldova for the Moldova


                                       8
<PAGE>

national  documentation  project.  The  loss  of any of our  existing  strategic
relationships,  or the  inability to create new strategic  relationships  in the
future, could adversely affect our ability to develop and sell our products.

         We sometimes depend upon our strategic  partners to market our products
and to fund and perform their obligations as contemplated by our agreements with
them. We do not control the time and resources  devoted by our partners to these
activities.  These  relationships  may not  continue  or may require us to spend
significant financial, personnel and administrative resources from time to time.
We may not have the resources  available to satisfy our  commitments,  which may
adversely affect our strategic relationships.

         If alliance or supplier agreements are cancelled,  modified or delayed,
if alliance  or supplier  partners  decide not to  purchase  our  products or to
purchase only limited  quantities of our products,  or if we are unable to enter
into additional alliance or supplier agreements, our ability to produce and sell
our products and to generate sales revenues could be adversely affected.

OUR  DEPENDENCE  ON THIRD PARTY  DISTRIBUTORS,  SALES  AGENTS,  AND  VALUE-ADDED
RESELLERS COULD RESULT IN MARKETING AND DISTRIBUTION  DELAYS WHICH WOULD PREVENT
US FROM GENERATING SALES REVENUES.

         We market and sell some of our products using a network of distributors
covering  several  major world  regions,  including  the United  States.  We are
currently  engaged in  discussions  with  other  potential  distributors,  sales
agents, and value-added resellers. Such arrangements may never be finalized and,
if finalized,  such  arrangements  may not increase our revenues or enable us to
achieve profitability.

         Our  ability  to  terminate  a  distributor   who  is  not   performing
satisfactorily  may be limited.  Inadequate  performance by a distributor  would
adversely  affect our  ability to develop  markets in the  regions for which the
distributor  is   responsible   and  could  result  in   substantially   greater
expenditures by us in order to develop such markets.  Our operating results will
be highly  dependent upon: (i) our ability to maintain our existing  distributor
arrangements;  (ii) our  ability to  establish  and  maintain  coverage of major
geographic  areas and establish  access to customers and markets;  and (iii) the
ability  of  our  distributors,  sales  agents,  and  value-added  resellers  to
successfully  market our products.  A failure to achieve these  objectives could
result in lower revenues.

THIRD  PARTIES  COULD  OBTAIN  ACCESS TO OUR  PROPRIETARY  INFORMATION  OR COULD
INDEPENDENTLY DEVELOP SIMILAR TECHNOLOGIES BECAUSE OF THE LIMITED PROTECTION FOR
OUR INTELLECTUAL PROPERTY AND SUCH ACTIONS WOULD ENABLE THIRD PARTIES TO COMPETE
MORE  EFFECTIVELY WITH US AND,  ACCORDINGLY,  THESE ACTIONS WOULD HAVE A HARMFUL
EFFECT ON OUR OPERATIONS.

         Despite the  precautions we take,  third parties may copy or obtain and
use  our  proprietary  technologies,   ideas,  know-how  and  other  proprietary
information  without  authorization or may  independently  develop  technologies
similar or superior to our technologies.  In addition,  the  confidentiality and
non-competition  agreements  between us and most of our employees,  distributors
and  clients  may  not  provide   meaningful   protection  of  our   proprietary
technologies or other intellectual  property in the event of unauthorized use or
disclosure.  If we are  not  able  to  defend  successfully  our  industrial  or
intellectual property rights, we might lose rights to technology that we need to
develop our business, which may cause us to lose potential revenues, or we might
be required to pay significant  license fees for the use of such technology.  To
date,  we have relied  primarily on a  combination  of patent,  trade secret and
copyright laws, as well as nondisclosure and other  contractual  restrictions on
copying,  reverse  engineering  and  distribution  to  protect  our  proprietary
technology. We currently have three registered patents in Israel, one in Europe,
one in the  United  States,  one in Hong  Kong,  one in  Ukraine  and two patent
applications pending in the United States and Europe and other jurisdictions for
technology  related to our smart card  technology.  We may not be issued patents
based on our patent applications. Any inability to protect intellectual property
rights in our technology  could enable third parties to compete more effectively
with us and/or could reduce our ability to compete.  In addition,  these efforts
to  protect  our  intellectual   property  rights  could  require  us  to  incur
substantial costs even when our efforts are successful.

         In addition,  the laws of certain foreign countries may not protect our
intellectual  property rights to the same extent as do the laws of Israel or the
United  States.  Our means of protecting  our  intellectual  property  rights in
Israel,  the United  States or any other  country in which we operate may not be
adequate to fully protect our intellectual property rights.

WE MAY FACE HARMFUL CLAIMS OF  INFRINGEMENT OF PROPRIETARY  RIGHTS,  WHICH COULD
REQUIRE  US TO  DEVOTE  SUBSTANTIAL  TIME AND  RESOURCES  TOWARD  MODIFYING  OUR
PRODUCTS OR OBTAINING APPROPRIATE LICENSES.

         There is a risk that our products  infringe the  proprietary  rights of
third  parties.  In August  2003,  we received a letter  stating  that we may be
infringing certain patents of third parties. We do not believe that our products
or  technology  infringes


                                       9
<PAGE>

such parties' patents or any other third party's patents.  Regardless of whether
our products  infringe on proprietary  rights of third parties,  infringement or
invalidity  claims may be asserted or  prosecuted  against us and we could incur
significant  expenses in defending them. If any  infringement  claims or actions
are successfully  asserted against us, we may be required to discontinue the use
of certain processes, cease the manufacture, use and sale of infringing products
and services, expend significant resources to develop non infringing technology,
modify  our  products  and  services  or seek  licenses  for these  intellectual
property rights. We may not be able to modify our products or obtain licenses on
commercially  reasonable  terms, in a timely manner or at all. Our failure to do
so could adversely affect our business by preventing us from selling some or all
of our  products.  Adverse or  protracted  litigation  or the  failure to obtain
necessary licenses or other rights could increase our expenses, as well as delay
our increasing revenues,  due to the possible devotion of significant  financial
and human resources in defending such litigation.

A SECURITY  BREACH OF OUR INTERNAL  SYSTEMS OR THOSE OF OUR CUSTOMERS COULD HARM
OUR BUSINESS BY ADVERSELY  AFFECTING THE MARKET'S PERCEPTION OF OUR PRODUCTS AND
SERVICES THEREBY CAUSING OUR REVENUES TO DECLINE.

         For us to penetrate  further the  marketplace,  the marketplace must be
confident that we provide  effective  security  protection for national identity
and other secured ID documents and cards.  Although we have not  experienced any
act of  sabotage  or  unauthorized  access by a third  party of our  software or
technology to date, if an actual or perceived  breach of security  occurs in our
internal systems or those of our customers,  regardless of whether we caused the
breach,  it could adversely  affect the market's  perception of our products and
services. This could cause us to lose customers, resellers, alliance partners or
other business  partners  thereby causing our revenues to decline.  If we or our
customers  were to  experience  a breach of our internal  systems,  our business
could be severely harmed by adversely  affecting the market's  perception of our
products and services.

WE MAY BE EXPOSED TO  SIGNIFICANT  LIABILITY FOR ACTUAL OR PERCEIVED  FAILURE TO
PROVIDE  REQUIRED  PRODUCTS OR SERVICES  WHICH COULD DAMAGE OUR  REPUTATION  AND
ADVERSELY  AFFECT OUR  BUSINESS BY CAUSING OUR REVENUES TO DECLINE AND OUR COSTS
TO RISE.

         Products as complex as those we offer may contain  undetected errors or
may fail when first  introduced or when new versions are  released.  Despite our
product  testing efforts and testing by current and potential  customers,  it is
possible  that  errors  will be  found in new  products  or  enhancements  after
commencement  of commercial  shipments.  The  occurrence  of product  defects or
errors  could  result  in  adverse  publicity,  delay in  product  introduction,
diversion  of  resources  to  remedy  defects,  loss  of or a  delay  in  market
acceptance,  or  claims by  customers  against  us,  or could  cause us to incur
additional  costs or lose  revenues,  any of which  could  adversely  affect our
business.

         Because  our  customers  rely on our  products  for  critical  security
applications,  we may be  exposed to claims for  damages  allegedly  caused to a
customer  as a result of an actual or  perceived  failure  of our  products.  An
actual  or  perceived  breach  of  security  systems  of one  of our  customers,
regardless of whether the breach is  attributable  to our products or solutions,
could  adversely  affect our business  reputation.  Furthermore,  our failure or
inability to meet a customer's  expectations in the performance of our services,
or to do so in the  time  frame  required  by the  customer,  regardless  of our
responsibility for the failure,  could result in a claim for substantial damages
against us by the  customer,  discourage  other  customers  from engaging us for
these services, and damage our business reputation.

         We currently carry product  liability  insurance,  errors and omissions
for  high-technology  companies  insurance and insurance to guard against losses
caused by  employees'  dishonesty.  We believe that this  insurance  coverage is
comparable to that of other similar  companies in our  industry.  However,  that
insurance  may not  continue to be  available  to us on  reasonable  terms or in
sufficient  amounts  to cover  one or more  large  claims,  or the  insurer  may
disclaim coverage as to any future claim. We do not maintain  insurance coverage
for employee errors or security breaches,  nor do we maintain specific insurance
coverage  for any  interruptions  in our  business  operations.  The  successful
assertion of one or more large claims against us that exceed available insurance
coverage,  or changes in our insurance policies,  including premium increases or
the  imposition  of  large  deductibles  or  co-insurance  requirements,   could
adversely affect our business by increasing our costs.

OUR EFFORTS TO EXPAND OUR  INTERNATIONAL  OPERATIONS  ARE SUBJECT TO A NUMBER OF
RISKS, ANY OF WHICH COULD ADVERSELY REDUCE OUR FUTURE INTERNATIONAL SALES.

         Most of our business to date has been in  jurisdictions  other than the
United  States and we plan to increase our  international  sales  outside of the
United States. Our inability to obtain or maintain federal or foreign regulatory
approvals  relating to the import or export of our  products  on a timely  basis
could  adversely  affect  our  ability  to expand  our  international  business.
Additionally,  our  international  operations  could be  subject  to a number of
risks,  any of which  could  adversely  affect our future  international  sales,
including:


                                       10
<PAGE>

         o   increased collection risks;

         o   trade restrictions;

         o   export duties and tariffs;

         o   uncertain political, regulatory and economic developments;

         o   inability to protect our intellectual property rights; and

         o   currency issues.

         In addition,  in many  countries  the national  security  organizations
require our employees to obtain  clearance  before such  employees can work on a
particular  transaction.  Failure  to  receive,  or  delays in the  receipt  of,
relevant foreign qualifications also could have a material adverse effect on our
ability to obtain sales at all or on a timely  basis.  Additionally,  as foreign
government regulators have become increasingly  stringent,  we may be subject to
more rigorous  regulation by governmental  authorities in the future. If we fail
to adequately address any of these regulations, our business will be harmed.

THE MARKETS THAT WE TARGET FOR A  SUBSTANTIAL  PART OF OUR FUTURE  GROWTH ARE IN
VERY EARLY STAGES OF DEVELOPMENT,  AND IF THEY DO NOT DEVELOP OUR BUSINESS MIGHT
NOT GROW AS MUCH OR AS PROFITABLY AS WE HOPE.

         Many of the markets that we target for our future  growth are currently
small or  non-existent  and need to  develop  if we are to  achieve  our  growth
objectives.  If some or all of these markets do not develop,  or if they develop
more slowly than we  anticipate,  then we will not grow as quickly or profitably
as we hope. For example,  we are developing smart card products and services for
the national  government ID market.  Smart card  technology  has not been widely
adopted by national  governments until recently,  largely due to the cost of the
necessary  infrastructure  and the relatively  limited  capabilities of previous
microchips.  We are investing in  identification  and security networks products
and services, but so far we have not deployed our systems on a widespread basis.
The development of these markets will depend on many factors that are beyond our
control, including the factors that are discussed in these Risk Factors.

IF  SMART  CARD  AND  HIGHLY  SECURED  DOCUMENT  TECHNOLOGY  IS NOT  ADOPTED  IN
GOVERNMENT  AND  INDUSTRY  ORGANIZATIONS,  WE MAY  LOSE  SOME  OF  OUR  EXISTING
CUSTOMERS AND OUR BUSINESS MIGHT NOT GROW AS MUCH OR AS PROFITABLY AS WE HOPE.

         Our ability to grow depends  significantly on whether  governmental and
industrial  organizations  adopt  smart  card  technology  as part of their  new
standards.  If these  organizations  do not adopt smart card and highly  secured
document  technology,  then we might  not be able to  penetrate  some of the new
markets we are targeting, or we might lose some of our existing customer base.

         In order for us to achieve our growth objectives, smart card technology
must be adopted in a variety of areas, including:

         o   bank credit and debit card systems,  which in most  countries  have
             traditionally  relied on magnetic  stripe cards as their  principal
             technology;

         o   computer  equipment,  which  must  include  smart  card  readers as
             standard equipment if the use of smart cards for Internet and other
             applications is to become common;

         o   widely  used  digital  signature  information  technology  security
             systems;

         o   national identity card programs,  which are considering smart cards
             with biometric technology;

         o   government issued passports and ID cards which include  contactless
             smart card chips,  which has been recently  recommended  as the new
             standard by International Committee of Aviation Organizations;

         o   transportation applications using cards as method of payment; and

         o   access control in such fields as education and health care.


                                       11
<PAGE>

Any or all of these areas may not adopt smart card technology.

WE NEED TO DEVELOP OUR POSITION AS A PROVIDER OF SOFTWARE,  SYSTEMS AND SERVICES
TO EARN HIGH MARGINS FROM OUR  TECHNOLOGY  AND, IF WE ARE UNABLE TO DEVELOP SUCH
POSITION,  OUR BUSINESS  WILL NOT BE AS  PROFITABLE AS WE HOPE, IF PROFITABLE AT
ALL.

         The increasing sophistication of smart card technology places a premium
on providing innovative software, systems and services to customers, in addition
to manufacturing and supplying smart cards. While we have had some early success
positioning ourselves as a provider of services and systems, may not continue to
be successful with this strategy and we may not be able to capture a significant
share of the market for the  sophisticated  services and systems that we believe
are likely to produce attractive margins in the future. A significant portion of
the value of smart card technology lies in the development of operating  systems
and  applications  that will  permit the use of smart cards in new  markets.  In
contrast,  the margins involved in manufacturing  and selling smart cards can be
relatively small, and might not be sufficient to permit us to earn an attractive
return on our development investments.

IF WE ARE UNABLE TO KEEP UP WITH RAPID  CHANGES  IN SMART CARD  TECHNOLOGY,  OUR
EXISTING  PRODUCTS AND  SERVICES  COULD  BECOME  OBSOLETE AND OUR REVENUES  WILL
DECLINE.

         The  market  for  our   products   and  services  is  marked  by  rapid
technological  change,   frequent  new  product  introductions  and  smart  card
technology  enhancements,  uncertain  product life  cycles,  changes in customer
demands and evolving industry standards.  New products and services based on new
or improved  technologies or new industry standards can render existing products
and services obsolete and unmarketable.  To succeed, we will need to enhance our
current products and service  offerings and develop new products and services on
a timely basis to keep pace with  developments  related to smart card technology
and to satisfy the increasingly sophisticated requirements of our customers. Any
delays in developing  and releasing  enhanced or new products and services or in
keeping  pace  with  continuous  technological  change  may cause us to lose our
existing customer base.

         The process of  developing  our  products  and  services  is  extremely
complex and requires significant continuing development efforts. Our investments
in research  and  development  have been  considerable  and may  increase in the
future.  In order to earn an adequate  return on these  investments,  we need to
expand our sales significantly. We may not achieve our development objectives or
expand our sales.

THE TIME FROM OUR INITIAL  CONTACT WITH A CUSTOMER TO A SALE IS LONG AND SUBJECT
TO DELAYS,  WHICH COULD  RESULT IN THE  POSTPONEMENT  OF OUR RECEIPT OF REVENUES
FROM ONE  ACCOUNTING  PERIOD  TO THE NEXT,  INCREASING  THE  VARIABILITY  OF OUR
RESULTS OF OPERATIONS AND CAUSING  SIGNIFICANT  FLUCTUATIONS IN OUR REVENUE FROM
QUARTER TO QUARTER.

         The period  between our initial  contact with a potential  customer and
the  purchase of our  products  and services is often long and subject to delays
associated  with the budgeting,  approval and competitive  evaluation  processes
that frequently  accompany  significant  capital  expenditures,  particularly by
governmental  agencies. The typical sales cycle for our government customers has
to date  ranged  from three to 24 months  and the  typical  sales  cycle for our
commercial  customers  has ranged from one to six months.  A lengthy sales cycle
may have an impact on the timing of our revenue,  which may cause our  quarterly
operating  results  to fall  below  investor  expectations.  We  believe  that a
customer's  decision to purchase our  products  and  services is  discretionary,
involves a significant  commitment  of resources,  and is influenced by customer
budgetary cycles.  To successfully sell our products and services,  we generally
must educate our potential customers regarding their use and benefits, which can
require significant time and resources. This significant expenditure of time and
resources may not result in actual sales of our products and services.

OUR MARKETS ARE HIGHLY  COMPETITIVE  AND  COMPETITION  COULD HARM OUR ABILITY TO
SELL PRODUCTS AND SERVICES AND COULD REDUCE OUR MARKET SHARE.

          The market for smart card and secured  document  products and services
is  intensely  competitive.  We expect  competition  to increase as the industry
grows and as smart  card  technology  begins to  converge  with the  information
technology industry.  We may not be able to compete successfully against current
or future competitors.  We face competition from  technologically  sophisticated
companies,  many of which have substantially greater technical,  financial,  and
marketing  resources than us. In some cases,  we compete with entities that have
pre-existing   relationships   with   potential   customers.   As  the  national
documentation  production market expands,  we expect  additional  competitors to
enter the market.

         Some of our competitors and potential competitors have larger technical
staffs, larger customer bases, more established  distribution channels,  greater
brand recognition and greater  financial,  marketing and other resources than we
do.


                                       12
<PAGE>

Our competitors  may be able to develop  products and services that are superior
to our products and services,  that achieve greater customer  acceptance or that
have significantly improved functionality as compared to our existing and future
smart card products and services.  In addition,  our  competitors may be able to
negotiate  strategic  relationships  on more favorable terms than we are able to
negotiate.  Many of our competitors may also have well established relationships
with our existing and prospective customers. Increased competition may result in
our experiencing reduced margins, loss of sales or decreased market shares.

WE RELY ON THE SERVICES OF CERTAIN  EXECUTIVE  OFFICERS AND KEY  PERSONNEL,  THE
LOSS OF WHOM COULD  ADVERSELY  AFFECT OUR  OPERATIONS BY CAUSING A DISRUPTION TO
OUR BUSINESS.

         Our future success  depends largely on the efforts and abilities of our
executive  officers and senior  management  and other key  employees,  including
technical and sales personnel.  The loss of the services of any of these persons
could disrupt our business until replacements, if available, can be found. We do
not maintain any key-person insurance for any of our employees.

OUR  ABILITY TO REMAIN  COMPETITIVE  DEPENDS IN PART ON  ATTRACTING,  HIRING AND
RETAINING  QUALIFIED  TECHNICAL  PERSONNEL AND, IF WE ARE NOT SUCCESSFUL IN SUCH
HIRING AND RETENTION, OUR BUSINESS COULD BE DISRUPTED.

         Our future  success  depends in part on the  availability  of qualified
technical  personnel,  including  personnel  trained in  software  and  hardware
applications  within  specialized  fields.  As a  result,  we may not be able to
successfully attract or retain skilled technical employees, which may impede our
ability to develop,  install  implement and  otherwise  service our software and
hardware systems and to efficiently conduct our operations.

         The  information   technology  and  network  security   industries  are
characterized by a high level of employee  mobility and the market for technical
personnel  remains extremely  competitive in certain regions,  including Israel.
This competition means there are fewer highly qualified  employees  available to
hire,  the costs of hiring  and  retaining  such  personnel  are high and highly
qualified  employees  may not remain with our Company  once hired.  Furthermore,
there may be  pressure to provide  technical  employees  with stock  options and
other equity interests in our Company,  which may dilute our earnings (loss) per
share.

         Additions  of new  personnel  and  departures  of  existing  personnel,
particularly  in key  positions,  can be  disruptive,  might lead to  additional
departures of existing personnel and could have a material adverse effect on our
business, operating results and financial condition.

OUR PLANNED GROWTH WILL PLACE SIGNIFICANT STRAIN ON OUR FINANCIAL AND MANAGERIAL
RESOURCES AND MAY  NEGATIVELY  AFFECT OUR RESULTS OF  OPERATIONS  AND ABILITY TO
GROW.

         Our ability to manage our growth effectively will require us:

      o  to  continue  to  improve  our  operations,  financial  and  management
         controls, reporting systems and procedures;

      o  to train, motivate and manage our employees; and

      o  as required, to install new management information systems.

         Our existing  management  and any new members of management  may not be
able to augment or improve  existing  systems  and  controls  or  implement  new
systems  and  controls  in  response to  anticipated  future  growth.  If we are
successful  in  achieving  our growth  plans,  such  growth is likely to place a
significant  burden  on  the  operating  and  financial  systems,  resulting  in
increased responsibility for our senior management and other personnel.

SOME OF OUR PRODUCTS ARE SUBJECT TO  GOVERNMENT  REGULATION  OF RADIO  FREQUENCY
TECHNOLOGY  WHICH COULD CAUSE A DELAY OR INABILITY TO INTRODUCE SUCH PRODUCTS IN
THE UNITED STATES AND OTHER MARKETS.

         The rules and  regulations of the United States Federal  Communications
Commission  or, the "FCC" limit the radio  frequency  used by and level of power
emitting from  electronic  equipment.  Our readers,  controllers and other radio
frequency  technology  scanning  equipment are required to comply with these FCC
rules which may  require  certification,  verification  or  registration  of the
equipment with the FCC. Certification and verification of new equipment requires
testing to ensure the equipment's compliance with the FCC's rules. The equipment
must be  labeled  according  to the FCC's  rules to show  compliance  with these
rules.   Testing,   processing  of  the  FCC's  equipment   certificate  or  FCC
registration,  and labeling


                                       13
<PAGE>

may increase  development and production  costs and could delay  introduction of
our verification  scanning device and next-generation radio frequency technology
scanning  equipment  into the U.S.  market.  Electronic  equipment  permitted or
authorized  to be used by the FCC  through  our  certification  or  verification
procedures must not cause harmful  interference to licensed FCC users, and it is
subject to radio  frequency  interference  from  licensed  FCC  users.  Selling,
leasing or importing  non-compliant  equipment is  considered a violation of FCC
rules and federal law and violators may be subject to an  enforcement  action by
the FCC. Any failure to comply with the applicable  rules and regulations of the
FCC could have a material adverse effect on our business,  operating results and
financial by increasing  our costs due to  compliance  and/or limit our sales in
the United States.

CONDITIONS IN ISRAEL  AFFECT OUR  OPERATIONS IN ISRAEL AND MAY LIMIT OUR ABILITY
TO SELL OUR PRODUCTS AND SERVICES.

         We incorporated  under Israeli law and our  manufacturing  facility and
research  and  development  facility  will  continue  to be  located  in Israel.
Political,  economic  and  military  conditions  in  Israel  will,  accordingly,
continue  to affect  our  operations.  Since the  establishment  of the State of
Israel in 1948, a number of armed  conflicts have taken place between Israel and
its Arab  neighbors and a state of hostility,  varying in degree and  intensity,
has led to security and economic  problems for Israel.  Despite  negotiations to
effect peace between  Israel and its Arab  neighbors,  the future of these peace
efforts is uncertain.  Since October 2000, there has been a significant increase
in  violence  primarily  in the West Bank and Gaza Strip,  negotiations  between
Israel and the Palestinian Authority have ceased from time to time and there has
been increased  military  activity  characterized by some as war. More recently,
violence has spread to Jerusalem and areas near Tel Aviv.  Furthermore,  several
countries  still  restrict  trade with  Israeli  companies,  which may limit our
ability to make sales,  or purchase  components  from, in those  countries.  Any
future armed conflict,  political instability,  continued violence in the region
or restrictions could have a material adverse effect on our business,  operating
results and financial condition.

OUR OPERATIONS COULD BE DISRUPTED AS A RESULT OF THE OBLIGATION OF MANAGEMENT OR
KEY PERSONNEL TO PERFORM MILITARY SERVICE IN ISRAEL.

         Generally,  all male adult  citizens and permanent  residents of Israel
under the age of 45 are,  unless  exempt,  obligated to perform up to 36 days of
military reserve duty annually.  Additionally, all Israeli residents of this age
are  subject  to  being  called  to  active  duty at any  time  under  emergency
circumstances. Some of the officers and employees of SuperCom Ltd. Are currently
obligated to perform annual  reserve duty. Our operations  could be disrupted by
the absence for a significant  period of one or more of SuperCom Ltd.'s officers
or key employees due to military  service.  Any such disruption could affect our
business, results and financial condition.

FLUCTUATIONS  IN THE EXCHANGE  RATE BETWEEN THE UNITED STATES DOLLAR AND FOREIGN
CURRENCIES MAY AFFECT OUR OPERATING RESULTS.

         We incur expenses for our  operations in Israel in New Israeli  Shekels
(NIS) and translate  these  amounts into United  States  dollars for purposes of
reporting  consolidated  results. As a result,  fluctuations in foreign currency
exchange rates may adversely  affect our expenses and results of operations,  as
well as the value of our  assets and  liabilities.  Fluctuations  may  adversely
affect the  comparability  of  period-to-period  results.  In addition,  we hold
foreign  currency  balances,  primarily NIS, that will create  foreign  exchange
gains or losses,  depending upon the relative values of the foreign  currency at
the  beginning  and end of the  reporting  period,  affecting our net income and
earnings per share.  Although we may use hedging techniques in the future (which
we  currently  do not  use),  we may not be able to  eliminate  the  effects  of
currency  fluctuations.  Thus,  exchange rate fluctuations could have a material
adverse  impact on our operating  results and stock price.  In addition,  future
currency  exchange losses may increase if we become subject to exchange  control
regulations  restricting  our ability to convert  local  currencies  into United
States dollars or other currencies.

WE ARE EXPOSED TO SPECIAL  RISKS IN FOREIGN  MARKETS WHICH MAY MAKE IT DIFFICULT
IN  SETTLING   TRANSACTIONS  AND  THEREBY  FORCE  US  TO  CURTAIL  OUR  BUSINESS
OPERATIONS.

         In  conducting  our  business in foreign  countries,  we are subject to
political,  economic,  legal,  operational  and other risks that are inherent in
operating in other  countries.  These risks range from  difficulties in settling
transactions  in emerging  markets to possible  nationalization,  expropriation,
price controls and other restrictive governmental actions. We also face the risk
that exchange controls or similar  restrictions  imposed by foreign governmental
authorities may restrict our ability to convert local currency  received or held
by it in their countries into United States dollars or other  currencies,  or to
take those dollars or other currencies out of those countries.

OUR SHAREHOLDERS MAY FACE  DIFFICULTIES IN THE ENFORCEMENT OF CIVIL  LIABILITIES
AGAINST SUPERCOM LTD. AND ITS OFFICERS AND DIRECTORS.


                                       14
<PAGE>

         Certain of our directors and our professional advisors are residents of
Israel or otherwise  reside  outside of the United  States.  SuperCom  Ltd.,  is
incorporated  under  Israeli law and its  principal  office and  facilities  are
located in Israel.  All or a  substantial  portion of the assets of such persons
are or may be located  outside  of the United  States.  It may be  difficult  to
effect  service of process  within  the United  States  upon us or upon any such
directors  or  professional  advisors  or to realize in the United  States  upon
judgments of United States' courts  predicated  upon civil liability of SuperCom
Ltd. or such persons under United States federal  securities  laws. We have been
advised by our Israeli  counsel that there is doubt as to whether Israeli courts
would (i) enforce  judgments of United States' courts obtained  against SuperCom
Ltd. or such directors or professional advisors predicated solely upon the civil
liabilities provisions of United States' federal securities laws, or (ii) impose
liabilities  in original  actions  against  SuperCom Ltd. or such  directors and
professional  advisors predicated solely upon such United States' laws. However,
subject to  certain  time  limitations,  Israeli  courts  will  enforce  foreign
(including  United States) final executory  judgments for liquidated  amounts in
civil matters, obtained after due trial before a court of competent jurisdiction
which recognizes  similar Israeli  judgments,  provided that (1) due process has
been observed,  (2) such judgments or the execution  thereof are not contrary to
Israeli law, public policy, security or sovereignty, (3) such judgments were not
obtained by fraud and do not conflict with any other valid  judgment in the same
matter  between the same  parties and (4) an action  between the same parties in
the same matter is not pending in any Israeli  court at the time the law suit is
instituted in the foreign court.

WE ARE UNLIKELY TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.

         We distributed a cash dividend to our  shareholders  on one occasion on
August  26,  1997 in the  aggregate  amount of NIS 1  million  and prior to that
dividends in the form of bonus shares were  distributed on two other  occasions.
We do not expect to declare or pay cash dividends in the foreseeable  future and
currently  intend to retain future  earnings,  if any, to finance the growth and
development of our business.

ITEM 4.  INFORMATION ON THE CORPORATION.

A. HISTORY AND DEVELOPMENT OF THE CORPORATION

         SuperCom  Ltd.  was  incorporated  in Israel,  as a company  limited by
shares,  on  July 4,  1988  under  the  name  "SuperCom  Ltd."  pursuant  to the
provisions of the then current  Israeli  Companies  Ordinance.  The  legislative
framework  within which we now operate is the Israeli  Companies Law,  5759-1999
(the  "Companies  Law"),  which became  effective  on February 1, 2000,  and the
Israeli  Companies  Ordinance  (New Version)  1983,  as amended (the  "Companies
Ordinance").

         SuperCom  Ltd.  became a  publicly-traded  company on Nasdaq  Europe on
April 19,1999.  On October 23, 2003,  following the closing of the Nasdaq Europe
stock market,  we transferred the listing of our shares to Euronext Brussels New
Market under the symbol "SUP".

         From our incorporation in 1988 until 1999, we were a  development-stage
company   primarily   engaged  in   research   and   development,   establishing
relationships with suppliers and potential  customers and recruiting  personnel.
During the fiscal year ended December 31, 2002, we completed our  reorganization
plan  which  began in 2001.  According  to such  plan,  we  decided to focus our
marketing  and  sales  efforts  on the  commercial  market  with a new  line  of
products,  including  SmartGate 2400,  EduGate,  DynaGate and Flight Gate, while
still maintaining our business in the governmental market.

         In December 2002, we discontinued  the operations of two  subsidiaries,
Genodous Inc. and  Kromotek,  Inc.,  and disposed of all assets  related to such
subsidiaries.  The operations and cash flows of those two subsidiaries have been
eliminated from our operations.  We have no intention of continuing our activity
in such subsidiaries. Our plan of discontinuance involved (i) termination of all
employees related to those subsidiaries,  including payment of all statutory and
contractual  severance  sums, by the end of the fourth quarter of 2002, and (ii)
disposal of the equipment owned by such subsidiaries.

         During the  period  from  January 1, 2003 to  December  31,  2003,  our
capital expenditures totaled  approximately  $87,000 (compared to $73,000 during
2002 and $1,891,000  during 2001), of which  approximately  $78,000 (compared to
$69,000  during  2002  and  $1,719,000  during  2001)  was  expended  at or upon
SuperCom's  facilities in Israel,  and approximately  $9,000(compared  to $4,000
during 2002 and $172,000  during 2001) was expended  upon various  facilities of
SuperCom's  subsidiaries  outside Israel. Of these  expenditures,  approximately
$66,000 during 2003 (compared to $33,000 during 2002 and $1,741,000 during 2001)
was  for  capital  equipment  and  leasehold  improvements  and the  balance  of
approximately $21,000 (compared to $40,000 during 2002 and $150,000 during 2001)
was related to information technology.


                                       15
<PAGE>

         On Novenber 17, 2003, we purchased the remaining 20% of the shares that
we did not own of  SuperCom  Asia  Pacific  from  the  minority  shareholder  in
consideration for approximately $70,000.

         All of the above  expenditures  were paid from cash  generated from our
initial public offering.

         During  fiscal  2002,  we sold our equity  interest in our  subsidiary,
InkSure Technologies, Inc., or InkSure, for which we received aggregate proceeds
of approximately $6,600,000 from the sale of its shares. During 2003, we did not
make any  significant  capital  divestitures  nor are any such  divestitures  in
progress.  Other than further  capital  expenditures of the types and consistent
with the amounts described above, there are no significant capital  expenditures
in progress by us.

         On May 6, 2003,  we  announced  that we has executed a letter of intent
which sets  forth the  preliminary  terms and  conditions  of a proposed  merger
transaction between us and PerfectData Corporation, a US public "shell" company.
In connection with the merger, our shareholders were to exchange their shares of
capital stock for shares of common stock of PerfectData Corporation.  On October
24, 2003,  PerfectData  filed with the  Securities  and Exchange  Commission its
Registration  Statement on Form S-4  regarding the proposed  merger  transaction
between us and  PerfectData.  On January 20, 2004, we and Perfect Data announced
that they were mutually terminating the merger agreement and related agreements.

         Our  head  office  and  principal  place  of  business  is  located  at
Millennium  Bldg.,  3 Tidhar St.,  P.O.B.  2094,  Raanana 43665 Israel,  and our
telephone    number    is    +972-9-7750800.    Our    internet    address    is
http://www.supercomgroup.com.
----------------------------

         Our agent for SEC matters in the United States is SuperCom, Inc., whose
address is: 245 5th Avenue, Suite 2103, New York, NY 10016-8728

         To the knowledge of our management, there has been no indication of any
public  takeover  offers by third  parties  in respect of our shares or by us in
respect of other companies' shares during the last and current fiscal year.

         For  information  concerning  our capital  expenditures  and methods of
financing, see "Operating and Financial Review and Prospects."

B.  BUSINESS OVERVIEW

         We are a smart card  technology  company  that  designs,  develops  and
markets  advanced smart card  technologies and products for the governmental and
commercial secured  identification  markets.  With an embedded  microcontroller,
smart  cards have the unique  ability to store  large  amounts of data,  perform
on-card functions,  such as encryption,  and interact intelligently with a smart
card reader.  Smart cards connect to a smart card reader  through  either direct
physical contact or a remote contactless radio frequency interface.  We function
as a "one stop"  technological  integration  and  support  source for smart card
system  integrators,  utilizing  our know-how and  technologies.  We develop and
market a wide range of  complementary  technologies  and solutions for the smart
card market,  including  customizable smart cards, smart card-related  products,
proprietary smart card production technologies, and advanced identification,  or
ID,   technologies,   complemented  by  brand   protection  and   authentication
technologies.

         Since 1994, our technologies and products have been included in several
large governmental projects worldwide, such as the Hong Kong government passport
project,  the United Kingdom passport project and the Ukraine passport  project.
We believe that our  extensive  product line and  experience,  combined with our
growth strategy in governmental projects and commercial  solutions,  position us
for further  growth.  We cannot  assure you,  however,  that such growth will be
achieved.

         Beginning in the fourth quarter of 2001, we completely  reorganized our
operational and strategic  structure.  This reorganization  included an in-depth
analysis of our technologies,  products, applications,  target markets, business
and  marketing  strategies,  as  well  as  instituting  aggressive  cost-cutting
measures.  As a result of this process,  we decided to focus on what we believed
to be our core strengths:

         o   Smart card technology integration know-how;

         o   High security solution integration;

         o   Proprietary smart card technologies and products;

         o   Expertise in multi-application smart cards; and


                                       16
<PAGE>

         o   Extensive experience with the government ID market.

         Our  objective is to become a leading  provider of high-end  smart card
systems by marketing our extensive technological know-how, advanced technologies
and value-added  products and  applications  for government and commercial smart
cards in the secured identification and access control markets, worldwide. While
we intend to continue to participate in governmental  ventures,  we also plan to
increase  our  sales  efforts  in the  private  commercial  market  through  our
distribution   channels,   including  our  recently  entered  into  distribution
arrangements with Clinton  Electronics  Corporation,  TransTech  Systems,  Inc.,
Laminex, Inc. and Eastern DataComm.

         We will seek to market our products  and  proprietary  technologies  to
position us as:

             o   A horizontal smart card technology provider and integrator with
                 the    ability   to   respond   to   complex    security    and
                 multi-application smart card system challenges; and

             o   A provider of a  combination  of unique and  traditional  smart
                 cards and complementary smart card-related products,  which, as
                 applicable, will be sold "off-the-shelf" as complete solutions.

There can be no assurance as to whether we shall  achieve our  objective,  as to
the degree of our success in growth in the commercial market or as to whether we
shall achieve the desired position.

THE MARKET

OUR MARKET OPPORTUNITY

         Many industries are rapidly  adopting smart cards due to their enhanced
security  features.  One reason for this move is the  ability to use smart cards
for multiple  purposes.  In today's  world,  mobile phones are used not only for
communication,  but also for mobile  commerce.  Credit cards are used as loyalty
cards and as a means of authenticating  e-commerce transactions.  Transportation
payment cards at once support multiple transportation  providers and function as
debit cards for select retailers. Smart cards can carry personal information for
identification purposes, biometric data for physical access control, and digital
signatures for network security.

         A smart card is a card that stores information on an integrated circuit
chip embedded within the card,  rather than on a magnetic stripe on the surface.
While  a  typical  magnetic  stripe  card  stores  approximately  212  bytes  of
information,  generally  consisting  of limited  data, a smart card can store 64
kilobytes or more of  information,  which is many times more than a  traditional
magnetic stripe credit card. Additionally, the integrated circuit within a smart
card  serves  as a central  processing  unit  which,  combined  with its  memory
capacity, facilitates the use of encryption applications,  which secure data and
value  exchanges  within  networks  and the  Internet.  Smart  cards also permit
bi-directional  authentication,  which means that in addition to  authenticating
the identity of the user, the card can authenticate the validity of the intended
party or device prior to exchanging information or value.

         Due to the need for more secure identification and authentication,  and
the ability to incorporate  multi-application  features,  there has been a shift
towards adapting high-end smart card systems in both governmental and commercial
market  segments.  Governments  are seeking to move away from their  traditional
paper-based  identification  systems,  and commercial entities are also shifting
their secured systems away from basic, low memory single application cards.

         The demand for increasingly  complicated  smart card systems with novel
technological  abilities,  combined with increased  pressure for  cost-effective
systems,  has  fostered  the  emergence  of multiple  entrants in the smart card
market, each specializing in specific aspects of smart card production, software
or technology.  However,  the  complexity and sheer volume of these  specialized
providers  have  generated  an outcome  opposite  to the  market's  needs.  This
specialization has required a growing number of entities to become involved in a
single  project,  thereby  causing  longer  timelines,  higher  costs,  and less
optimized solutions.


                                       17
<PAGE>

SECURITY, COST REDUCTION AND SMART CARDS

         Governments and commercial  entities control and  mass-produce  various
types of identification documents and cards, such as passports,  visas, drivers'
licenses,  and national or  contactless  smart cards.  Such  documents and cards
generally  provide  their  owners with the ability to exercise  special  rights,
obtain benefits,  effect commercial transactions,  or cross otherwise restricted
borders.  As a result of their  importance,  identification  cards  and  related
documents are often forged or altered. The costs associated with such fraud, for
both  victims  and  law  enforcement  agents,  are  significant.   Consequently,
governments  and  commercial  organizations  are  seeking  solutions  that  will
heighten   security,   reduce  costs   associated   with  forged  or  fraudulent
identification  documentation and enable cost-effective production of secure and
durable documentation.

TECHNOLOGICAL DEVELOPMENTS

         As an  additional  means of  detecting  fraud,  identification  systems
increasingly  use biometric data,  which are unique  biological  characteristics
such as fingerprints  and facial images,  to verify personal  identity and other
personal information, such as medical and financial information. For example, in
our Philippines passport project, our identification  system includes a person's
fingerprint  as  verification  of a person's  identity.  The  inclusion  of this
information  in cards or  documents  for on-line or  real-time  verification  is
particularly  important  for  identification  cards  as they are  often  used in
commercial transactions.

POLITICAL DEVELOPMENTS

         The growth in the national identification documentation market has been
fueled by  geopolitical  developments  including the  disintegration  of several
federal  states (such as the former Soviet Union),  the subsequent  emergence of
newly independent nations, and the creation of regional communities (such as the
European  Union).   These  political   developments  have  created   significant
opportunities  as an  increasing  number of  governments  are  seeking to create
digital  population  registry databases and  cost-effective,  secure and durable
national identification  documentation.  Over the past year, we have submitted a
number  of  proposals  to  governments,  including  the  Israeli  and  Ethiopian
governments, to spearhead national identification  documentation projects. Since
the events of  September  11,  2001,  we have  observed  increased  interest  in
government ID projects.  Governments that had previously planned to change their
national  ID  documents  delayed  implementation  until 2003 or 2004 in order to
establish an identification system with a higher degree of security.

AUTHENTICATION AND SECURITY OF DOCUMENTS

         Today, with the help of advanced printing technologies,  counterfeiters
can  produce  most of the  current  identification  documents  that exist in the
world.  The events of September  11, 2001 revealed to  governments  and security
agencies  worldwide  that one way to fight  terrorism is to require  national ID
documents  with a high level of security.  Our printing  production and security
technologies provide governments and their law enforcement agencies advanced and
highly  secure ID  documents  that  help  reduce  and  detect  counterfeited  ID
documents.

OUR STRATEGY

         We are a  provider  of  high-end  smart  card  systems  and  secured ID
document technologies. We believe that the government and commercial sectors are
moving towards the more  functional and broader  applications  that a smart card
solution can provide over traditional  methods. We are positioning  ourselves to
become a key player in government and commercial  smart card markets as a result
of our ability to function as a one-stop shop for cost-effective  high-end smart
card systems.  Our objective is to become a market leader in the development and
marketing  of our  advanced  smart card  technologies  and  value-added  related
products and applications for contactless smart card and ID markets worldwide.

         We intend to achieve our goal by:

         o   Focusing on both government and commercial customers;

         o   Leveraging our technological competence and reputation;

         o   Focusing on the smart card business;

         o   Focusing   research  and   development   on  adapting  our  current
             technology achievements to market demands;


                                       18
<PAGE>

         o   Increasing sales and marketing resources; and

         o   Seeking partnerships with other relevant companies.

     There can be no assurance that we shall achieve our goal,  whether in whole
or in part.

EXTEND TECHNOLOGICAL RECOGNITION

         We  believe  that our  customized  systems,  proprietary  printing  and
production  technologies,  software  packages and integration  capabilities will
enable us to position  ourselves  as a key  technological  player in the secured
identification document/card market. There can be no assurance, however, that we
shall become such a key technological player.

LEVERAGE TECHNOLOGY/KNOW-HOW INTO COMPLEMENTARY MARKETS

         We intend to leverage  our core  technologies  and know-how in order to
respond to the needs of existing and  potential  customers.  These  technologies
involve document  authentication  and registry  database  systems.  We intend to
tailor our marketing and sales efforts so as to integrate such technologies into
the actual solutions offered to our governmental and commercial customers. There
can be no assurance, however, that we shall be successful in these efforts.

EXPANSION OF THE CONTACTLESS SMART CARD BUSINESS

         We  believe  that the  picture  identification  contactless  smart card
represents  the next  generation of national  identification  documentation  and
anticipate increasing demand for this technology from our existing and potential
customer base. We have  positioned  ourselves to service this demand through the
development of our smart card production line technology.  We intend to become a
key player in the supply of  contactless  smart  cards to the  governmental  and
commercial markets,  and are consequently  investing in research and development
to enhance our contactless  smart card technologies in order to satisfy end-user
requirements.  There are two aspects of the expanding commercial market: (i) new
applications  and  (ii)  replacement  of  low-end  magnetic  stripe  cards  with
contactless smart cards with security  features.  There can be no assurance that
we shall  become a key  player in the  governmental  and  commercial  smart card
markets.

LEVERAGE PUBLIC SECTOR EXPERTISE INTO COMMERCIAL APPLICATIONS

         We believe  that  significant  commercial  possibilities  exist for our
secure and durable  document/card  production  solutions.  We have completed the
process of leveraging our expertise to the production of picture  identification
contactless smart cards, and now provide  solutions for commercial  applications
with  requirements  similar  to those in the public  sector,  such as private or
corporate identification cards, medical cards and benefits administration.

PENETRATING NEW MARKETS

         We intend to increase our penetration of existing markets by leveraging
our current products and systems to new  applications and new vertical  markets,
which can be used to produce  various types of documents and cards. We will also
seek to leverage our existing  relationships  and established  reputation in new
markets.  We have initiated entry into geographic markets upon which we have not
traditionally  focused,  such as the United  States.  There can be no assurance,
however, that our efforts will achieve their objectives.

RESEARCH AND DEVELOPMENT

         Our past research and development efforts have helped us to achieve the
goal of offering our customers a complete line of products and  solutions.  As a
result of our past  efforts,  we reduced the number of employees in our research
and development  activities to ten people as of December 31, 2003. We spent $1.2
million,  $1.3 million and $0.9 million on research  and  development  in, 2001,
2002 and 2003,  respectively.  These  amounts were spent on the  development  or
improvement  of our  technologies  and  products,  primarily  in the areas of an
automatic  contactless  smart card  production  line,  data capture,  management
software, population registry software packages, security printing,  contactless
smart cards and  document  authentication.  We will  continue  to  research  and
develop new security and  identification  features  through  laser  printing and
pre-printing,  create new  personalization  methods for contactless smart cards,
develop a range of smart card applications and continue to develop our automatic
contactless  smart card production  line.  There can be no assurance that we can
achieve any or all of our research and development goals.


                                       19
<PAGE>

PRODUCTS AND NEW TECHNOLOGY

         Since our inception in 1988,  we have been involved in the  development
of advanced  technologies for the national  documentation market. In view of the
increasing  demand  for  identification  cards  that are  based  on  contactless
smartcard technologies,  we have developed a fully automated production line for
picture  identification  contactless smart cards. We also offer to our customers
raw materials and  maintenance  and service  agreements.  In 2002, we decided to
focus on the commercial market through several new applications.  Today, we have
two major groups of solutions for our  customers  that are organized as separate
marketing divisions:

         o   Our  ID  and  smart  card   division   provides  ID  solutions  for
             governments  and contactless  smart card production  facilities for
             the governmental markets; and

         o   Our  commercial   marketing  division  focuses  on  our  commercial
             applications  such as SmartGate  2400,  Power Reader and EduGate in
             the United States and Asia Pacific.

CONTACTLESS SMART CARDS

         Our contactless  smart cards are customizable,  machine-readable  smart
cards  designed for a broad range of commercial and  governmental  applications.
From traditional ID documents to modern  e-commerce cards, our contactless smart
cards carry large quantities of data,  securely stored in a sealed microchip and
are read using our Smart Card Reader.  The cards come in different sizes and can
incorporate  virtually  any chip on the market.  For increased  durability,  the
cards are  constructed  from Teslin (R), an  ultra-thin  material  that  resists
abrasion. The cards are suitable for many existing and future applications, such
as e-identity  verification,  contactless  credit cards,  loyalty cards,  health
cards, financial sector cards,  transportation cards and others.  Currently, our
customers  are using  the  cards as  loyalty  cards as part of our  Edugate  and
Smartgate systems and as financial sector cards.

         We have designed and developed what we believe are unique  technologies
for the production of our proprietary  contactless smart card. The smart card is
a  pre-fabricated  multi-layered  Teslin (R) and polyester  card that contains a
radio  frequency  antenna and a  programmable  memory  chip.  Each smart card is
personalized,  including  the  initialization  of its memory  chip,  in order to
produce a particular contactless smart card. The design of the contactless smart
card minimizes the number of steps  necessary to produce smart cards because our
proprietary printing technology allows customers to print directly onto multiple
pages of the smart card. The smart card uses read/write memory chips supplied by
third  parties  with a capacity  that  ranges  from one to eight  kilobytes  and
contains an installed  "on-board"  operating  system.  This allows  customers to
re-program  the chip  following  initialization,  thereby  adding,  removing  or
updating applications and data without the need to replace the chip.

         We have also developed the contactless  smart card Production Line 1000
(SPPL 1000), a technology designed for the mass production of secure and durable
picture identification  contactless smart cards. The SPPL 1000-A automated smart
card inlet  production  line  produces  the inlet that  contains the chip and an
antenna that carries the secure,  personalized  data in the finished card, which
is the core of the  contactless  smart  card.  Producing  a  continuous  reel of
inlets,  the SPPL 1000-A increases  throughput and reduces waste.  Utilizing our
universal chip packaging, it can accommodate virtually any chip on the market.

         Our SPPL 1000-B automated  contactless  smart card and pouch production
line  produces the highly  durable  casing for our inlet:  either the  finished,
personalized  smart card or our  card-base  or our pouch.  The SPPL  1000-B uses
pre-printed  ultra-strong  Teslin (R) pages to produce high quality  color smart
cards laminated with additional protective layers of polyester.  The SPPL 1000-B
accepts   continuous  reels  of  our  smart  card  inlets,   thereby  maximizing
flexibility and cost efficiency.

CONTACTLESS SMART CARD READER/WRITER - 5600 SERIES

         Our Contactless  Smart Card  Readers/Writers  are devices that transfer
data  to  and  from  contactless   smart  cards.  Our  Contactless   Smart  Card
Readers/Writers  are easily  integrated  with devices such as vending  machines,
access gates and hand-held terminals. Unlike readers/writers that require direct
contact  between  the  card  and  reader,   SuperCom   Contactless   Smart  Card
Readers/Writers  operate  by  radio  frequency  technology,   which  allows  the
transmission of data by simply holding the card near the reader.  The ability to
read cards without  physical  contact speeds reaction time and prolongs the life
of both the smart card and the reader/writer.  In addition,  given that the 5600
Series  Reader/Writer has no moving parts,  maintenance and cost of ownership is
considerably reduced.


                                       20
<PAGE>

SMART CARD 8500 SERIES

         Our Smart Card 8500 Series  offers more  features  than our other smart
cards.  These smart cards are color  personalized,  highly  durable,  and may be
produced  at remote  issuing  stations  by  customers  using our  equipment.  In
addition,  the 8500 Series'  smart cards are designed to meet size and thickness
standards  regardless  of the size of the chip the  customer  chooses.  The 8500
Series' smart cards may  incorporate  a variety of security  features such as ID
pictures and  holograms,  hidden  features  detectable by  ultraviolet  lamps or
two-dimensional  bar-code readers, and proprietary features that require special
forensic equipment for  authentication.  Customers can select the security level
required for each card,  creating customized security solutions for different ID
types.

SECURITY PRINTING

         We have developed fully automated production lines that allow for rapid
mass  production  of generic  pouches  and  personalized  cards.  Our ability to
produce  generic  pouches is important  because such pouches may be personalized
through our  proprietary  transfer  printing  technology at a later stage.  This
provides  customers with the option to decentralize the mass production of cards
by  manufacturing  pouches in a centralized  location and  distributing  them to
sites (such as regional  documentation  issuing  sites or  embassies)  where the
pouch is personalized and the final card is produced.

TRANSFER PROCESS PRINTING

         Our proprietary transfer printing technology, which is patented in five
jurisdictions,  including the United States,  Europe and Hong Kong, allows us to
print  captured  data on booklets and pouches  regardless  of the size,  design,
type,  thickness or lamination  method used. This technology offers the customer
the option of  combining  the  security of  personalized  pouches  and  pre-sewn
laminated  booklets with the  durability of laser  printing in a  cost-effective
manner.  The ability to affix data on any size pouch or booklet provides us with
a competitive  advantage as governments  often purchase  quantities of different
types of blank  passport  booklets and pouches in bulk and desire the ability to
produce  durable  passports  and  similar  documents  in various  formats  while
utilizing  their entire  existing  stock of booklets and cards.  Our  technology
allows the printing of personalized  data on multiple passport pages in the same
step. This allows additional  security data to be included in a passport without
incurring a substantial increase in the cost of producing each booklet.

TESLIN PRINTING

         A growing segment of the national  identification  documentation market
uses Teslin (R) as its primary printing substrate.  Teslin (R) is a polymer that
was developed and patented in the United States by PPG  Industries.  We purchase
all of the Teslin (R) used in our business from PPG  Industries.  Teslin (R) has
been identified by the  identification  documentation  production  industry as a
potential  substrate  because of its high  absorption  level,  attractive  print
stability, and plastic-like flexibility and durability.  Teslin (R), however, is
extremely sensitive to high temperatures.  This renders useless any conventional
printing  technique based on extreme heat, such as laser printing.  In addition,
Teslin (R) is not  receptive to ink jet  printing.  The practice  adopted by the
national identification production industry is to use thick pieces of Teslin (R)
coated with various  chemicals in order to increase its resistance to heat. This
process,  however, makes the cards more vulnerable to damage, thus vitiating the
very  attractiveness  of Teslin (R). We offer our customers the ability to print
on Teslin (R) using high quality color laser printers. Our use of laser printing
provides us with an important  competitive  advantage  given that laser printing
can retain  functional  stability  for up to 10 years,  as opposed to ink jet or
thermal transfer technology printing, which are generally stable for only two to
five years.

         Our solution  features a production  process in which laser printing is
controlled  by  proprietary  software  rather than the typical heat and pressure
process. This solution makes laser printing possible on extremely thin layers of
uncoated Teslin (R), which maximizes durability while minimizing the possibility
of forgery or tampering.  We also utilize our Teslin (R) printing capability for
the  production of picture  identification  contactless  smart cards in order to
make such cards significantly more durable.

SOFTWARE PACKAGES

         Our software  packages are designed for data collection and management,
and capturing and encoding  various types of data in a personal  digitized file.
This facilitates control over the data printing process and storage of digitized
files at either a remote site or central  registry.  The packages can handle all
types of data ranging from images  captured  through live video,  photo or color
scanning to biometric  information,  including palm geometry,  fingerprints  and
facial  recognition.  The


                                       21
<PAGE>

packages are configurable with all types of database software,  can be used with
all commercially  available  platforms,  including  mainframe computers and UNIX
servers,  can support  multiple  document  types and printers and can operate in
Windows 98, Windows 2000, Windows XP and Windows NT environments.

         Our proprietary  software  integrates  these data capture  technologies
with a PC-based  workstation in a modular  configuration,  allowing for the easy
establishment  and operation of multiple data collection  stations and provision
of customer-specific  solutions.  In addition, our software enables data capture
workstation  operators to control the image capture process  exclusively through
the keyboard and to calibrate  multiple units of image capture equipment through
one centralized workstation.

RAW MATERIALS

         We sell specially designed kits containing the raw materials  necessary
to  produce  some  of  our  products,  including  silicon  sheets,  polyethylene
terephthalate  (PET)  and  Teslin  (R).  Among  the raw  materials  we sell  are
plastics,  various printing substrates,  toners and printing drums. Although not
all of these materials  incorporate our  technologies,  they include  components
necessary  for the  operation  of certain of our  systems.  In some  cases,  our
customer  agreements  require that customers  purchase raw materials from us for
the production of documents and cards exclusively for the term of the agreement.

COMMERCIAL PRODUCTS

         EDUGATE

         EduGate is an access control and attendance  system  designed to combat
school truancy.  The system allows school personnel to record and  automatically
report  students'  entry or exit by using a system of smart cards and smart card
readers  while  a  remote  central   computer   compiles  data  about  students'
attendance.  An optional feature is PhoneGate, an automated system that contacts
parents by email or text messaging if their child is absent from school.

         DYNAGATE

         DynaGate  is a portable  smart card reader and data  collection  device
that can also be  integrated  into our EduGate  system.  It utilizes the Dynamic
Access Control (DAC) concept (patent pending in the United States and Israel) to
enable school personnel to check,  record and  automatically  report a student's
entry or exit using a  specially  designed  mobile  reader.  The  school's  main
management system records activity and  automatically  notifies parents of their
child's absence from school.

         SMARTGATE 2400

         Security and  identification  authorization are important  concerns for
businesses and individuals alike.  SmartGate 2400 is an integrated  solution for
these concerns,  providing secured access control to targeted environments using
contactless  smart cards,  controllers  and readers.  These units are programmed
according to client  specifications  and carry an array of  personalization  and
security features. The multi-application system can be integrated into a variety
of environments,  including office  buildings,  residential  buildings,  nursing
homes, hospitals, universities and schools.

NEW TECHNOLOGIES

         Through our  involvement in the national  identification  documentation
market,  we have  identified  features  that require new  technologies  that are
complementary to our core  technologies,  primarily for document  authentication
and  population  registry  systems.   Magna  is  our  comprehensive,   web-based
population   registration  and  document  issuance  system  that  we  market  to
businesses and government  offices.  An off-the-shelf  software solution,  Magna
features generic core technology,  intuitive  modular  structure and easy-to-use
tools.  Magna enables  customization  without dependency on technical experts as
well as allowing controlled, seamless integration with existing legacy systems.


                                       22
<PAGE>

CUSTOMERS AND PROJECTS

PASSPORTS AND ID CARD, AFRICA

         In  April  2003,  we  entered  into an  agreement  with  the  Security,
Immigration and Refugees Affaires  Authority of an African country in connection
with passports and other travel  documentation  project in such African country.
The  agreement  has a term of five  years.  Pursuant to the  agreement,  we will
supply  the  customer  with  equipment  and  raw  materials  necessary  for  the
production of passports and other travel documents as required from time to time
under the agreement.  Pursuant to the agreement, the customer is required to pay
us for the  equipment  and the raw  materials  that we supply  in the  aggregate
amount of US $1.6  million.  During  2003,  we  generated  $536,000  in revenues
pursuant to this agreement.

PASSPORTS AND ID SMART CARDS, UKRAINE

         In September  1999, a consortium  led by us was awarded a contract from
the Ukrainian government for a national passport and ID smart card project. Over
the course of the project, we will supply technology,  production  equipment and
raw materials  for the issuance of passports and ID smart cards.  In April 2001,
we signed  the first  phase of this  agreement,  which  provided  the  Ukrainian
government with a central production system for issuing Ukrainian  passports and
finished the initial  implementation  phase.  During the next ten years, we will
provide  maintenance  and raw  materials  to the  Ukrainian  government  for its
passport project.  Pursuant to the terms of the second phase agreement,  we will
also provide our technology-based equipment and raw materials for the production
of ID smart  cards.  Equipment  sales from this project are valued at over $17.5
million and we had expected  such  revenues to be  recognized  between the years
2002 to 2005.  During  2002,  we began the  delivery  of the first  phase of the
Ukraine ID smart card project and  generated  revenues of $2.1  million.  During
2003, we generated an aggregate of $1.97 million in revenues from this project.

         In  April  2004,  we  were  informed  by the  International  Commercial
Arbitration   Court  at  the   Ukrainian   Chamber  of  Commerce   and  Industry
("Arbitration  Court") that the Department for Resources  Supply of the Ministry
of Internal  Affairs of Ukraine (the  Ministry)  had filed with the  Arbitration
Court a statement of claim to declare that  Contract No.  10/82,  dated April 9,
2002  between  SuperCom  and the  Ministry as void due to defaults in the tender
proceedings  under  which the  contract  had been  awarded to  SuperCom.  We are
currently  handling  this claim and  examining  the options  available to us. We
strongly believe that the claim has no merits and we intend to vigorously defend
the validity of the contract. However, we are not anticipating any revenues from
this project during 2004.

NATIONAL DOCUMENTATION, MOLDOVA

         In August 1995, we entered into an agreement with Intercomsoft Ltd., an
Irish company,  or Intercomsoft,  which was subsequently  amended on May 5, 1998
and July 22,  1998,  in  connection  with a  national  documentation  project in
Moldova.  The agreement has a term of ten years.  Pursuant to the agreement,  we
will supply  Intercomsoft  with  equipment and raw  materials  necessary for the
production   of   passports,    drivers'   licenses,    vehicle   registrations,
identification cards and other documents, as required from time to time under an
agreement between  Intercomsoft and the Ministry of Internal Affairs of Moldova,
or MIAM.  Pursuant to the agreement,  Intercomsoft is required to pay us for the
equipment and raw materials that we supply to Intercomsoft.  In addition, we are
entitled  to  25%  of   Intercomsoft's   gross  profits  from  the  sale  of  ID
documentation  to the MIAM.  In addition,  Trimol Group Inc., a publicly  traded
company in the United  States and the  parent  company of  Intercomsoft,  issued
125,000 Trimol shares to us as partial  consideration for the equipment supplied
and the other  undertakings.  In 2002,  we  generated  revenues of $1.5  million
pursuant to this  agreement.  During 2003,  we generated  $1,184,000 in revenues
pursuant to this agreement.

PASSPORTS, HONG KONG

         In  September  1996,  SuperCom  Asia  Pacific  Ltd.,  or SuperCom  Asia
Pacific,  as of December 31, 2003,  our 100%-owned  subsidiary,  entered into an
agreement  with China  Travel  Service  (Holdings)  H.K.  Ltd.,  or CTSH,  which
supplies  passports  to the Hong Kong  government.  Pursuant  to the  agreement,
SuperCom Asia Pacific,  as subcontractor,  is obligated to provide CTSH with all
the equipment and raw materials required for the production of passports in Hong
Kong.  The  agreement  provides  for payments for  equipment  and raw  materials
purchased  plus  annual  fees for  maintenance  after  the first 12  months.  In
September 1999, the parties signed a supplementary agreement whereby they agreed
to extend the agreement for an additional  term of three years through  December
31, 2003.  In  September  2003,  the parties  signed a  supplementary  agreement
whereby they agreed to extend the agreement  for an additional  term of one year
through December 31, 2004. In 2002, we generated  revenues of $615,000  pursuant
to this agreement.  During 2003, we generated  $811,000 in revenues  pursuant to
this agreement.


                                       23
<PAGE>

HONG KONG - CHINA RE-ENTRY CARDS

         In 1996,  SuperCom  Asia Pacific  entered into an agreement  with China
Travel  Services (CHK) Ltd., or CTS, which is responsible for the supply of Hong
Kong - China  re-entry  cards  to the Hong  Kong  government.  According  to the
agreement,  SuperCom Asia Pacific,  as subcontractor,  will provide CTS with all
the equipment and raw material  necessary for the  production of the Hong Kong -
China re-entry  cards.  The agreement  provides for payment of equipment and raw
materials plus annual  maintenance  fees after the first 12 months.  The term of
the  agreement  is  five  years  with a  five-year  renewal  option  and  can be
terminated  for cause.  In 2002, we generated  revenues of $931,000  pursuant to
this agreement.  During 2003, we generated $879,000 in revenues pursuant to this
agreement.

         In December 1999, the parties signed a supplementary agreement in which
they agreed to maintain the unit price of raw materials for an additional period
of three years  starting  on January 1, 2000,  provided  that CTS will  maintain
during that term a minimum annual order of raw materials of 1,000,000  units per
year.

PASSPORTS, UNITED KINGDOM

         In December  1997,  we entered  into an agreement  with the  Stationary
Office  Limited,  or TSO,  an  English  company,  which was  awarded a  ten-year
agreement  in June 1997 to  supply  passports  to the  United  Kingdom  Passport
Agency.  Pursuant to the agreement,  we, as subcontractor,  will supply TSO with
equipment and training for the production of passports at TSO's central facility
in  Manchester,  England  and at six  regional  offices  of the  United  Kingdom
Passport Agency. In addition,  TSO has the option to purchase raw materials from
us at prices specified in the agreement. The TSO agreement may be terminated for
cause and upon termination of TSO's agreement with the Passport Agency. In 2002,
we generated  revenues of $285,000  pursuant to this agreement.  During 2003, we
generated revenues of $140,000 pursuant to this agreement.

SALES AND MARKETING

         We  sell  our  systems  and  products  worldwide  through  distribution
channels  that include  direct  sales and  traditional  distributor  or reseller
sales.  We  have  approximately  27  employees  directly  engaged  in the  sale,
distribution   and  support  of  our  products  and  are  represented  by  seven
independent   distributors  and  resellers  with  which  we  have   distribution
agreements.  We are implementing a U.S. and European penetration plan, geared at
establishing  a strong  U.S.  and  European  sales and  marketing  presence  and
strategic partnerships. We expect these efforts to lead to a strong project flow
and increased product sales, and we anticipate that by 2006 nearly a majority of
all of our overall  revenues will come from  U.S.-based  projects.  However,  we
cannot assure you that we will meet this objective.

         Our  resellers  sell our systems and products to business  enterprises,
healthcare and educational  institutions and government  agencies and act as the
initial  customer  service  contact for the systems and products  they sell.  We
establish  relationships  with resellers through written agreements that provide
prices,  discounts  and other  material  terms and  conditions  under  which the
reseller  is eligible to purchase  our systems and  products  for resale.  These
agreements generally do not grant exclusivity to the resellers.

         During  2003,  we  signed  distribution   agreements  with  three  U.S.
distributors:  TransTech  Systems,  Inc.,  Laminex Inc. and Clinton  Electronics
Corporation, providing us with what we believe to be, but cannot assure you will
be, complete nationwide sales, distribution and support coverage for our systems
and products for the U.S. market.

SALES ANALYSIS

SALES BY GEOGRAPHIC DESTINATION:

     The  following  table  provides a breakdown of total  revenue by geographic
market (all amounts in thousands of US dollars):

YEAR                                    2001               2002            2003
                              ---------------    -------------------------------

Eastern Europe                        $1,749             $3,680          $3,154
Western Europe                           322                319             161
Far East                               2,240              1,942           2,067
Africa                                     0                  0             536
Middle East                              326                228             498
North America                          2,241                581             828
South America                             10                  5               0
Asia                                       1              1,272               0
                              ---------------    -------------------------------
TOTAL                                 $6,889             $8,027          $7,244
                              ===============    ===============================


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<PAGE>

CUSTOMER SERVICE

         We believe that customer  support plays a significant role in our sales
and  marketing  efforts and in our ability to  maintain  customer  satisfaction,
which is critical to our efforts to build our  reputation  and permit us to grow
in both new and  existing  markets.  In  addition,  we believe that the customer
interaction and feedback  involved in our ongoing support  functions  provide us
with information on customer needs that  contributes to our product  development
efforts. We generally provide maintenance services under our agreements pursuant
to terms that are according to each  particular  agreement.  We provide  service
either through customer training,  local third-party service organizations,  our
subsidiaries,  or our personnel,  including  appropriate personnel sent from our
headquarters in Israel.  We generally  provide our customers with a warranty for
our products varying in length from 12 to 36 months.  Costs incurred annually by
SuperCom for product warranties have to date been insignificant;  however, there
can be no  assurance  that these costs will not  increase  significantly  in the
future.

MANUFACTURING

         Our manufacturing  operations  consist primarily of materials  planning
and  procurement,  quality control of components,  kit assembly and integration,
final assembly,  and testing of fully-configured  systems. A significant portion
of our  manufacturing  operations  consists  of the  integration  and testing of
off-the-shelf  components.  All of our  products  and  systems,  whether  or not
manufactured by us, undergo several levels of testing,  including  configuration
to customer orders and testing with current release software, prior to delivery.

         Certain components, such as printers and digital cameras, are purchased
and  then  integrated  by us  into a data  capture  workstation.  We  perform  a
significant  amount of  primary  assembly  of our  printers.  We  contract  with
manufacturers to produce less technologically  sensitive and complex features of
our printers to our specifications.

         In addition, we purchase raw materials such as Teslin,  silicon, toners
and certain  security  features,  used by our customers in the  production of ID
documents from third parties.  While third parties process many of the materials
according to our specifications, we carry out the finishing and packaging of the
consumable materials.

         We do  not  have  minimum  supply  commitments  from  our  vendors  and
generally purchase  components on a purchase order basis.  Although we generally
use standard raw materials and components  for our systems,  some of the key raw
materials or components are available only from a single source, such as Teslin,
which is only available from PPG Industries, or from limited sources,  including
various  chips and  toners.  Even  where  multiple  sources  are  available,  we
typically  obtain  components  and raw materials  from only one vendor to ensure
high quality,  prompt delivery and low cost. If one of our suppliers were unable
to meet our  supply  demands  and we could not  quickly  replace  the  source of
supply,  it could  have a material  adverse  effect on our  business,  operating
results and  financial  condition,  for reasons  including a delay of receipt of
revenues and damage to our business  reputation.  We have,  however,  identified
alternate  sources of supply for most of our components  and raw  materials.  We
believe that our open  systems  architecture  facilitates  the  substitution  of
components when this becomes necessary or desirable.

COMPETITION

         The market for our products and services is extremely competitive.  Our
management  expects  this  competition  to intensify as the markets in which our
products and services  compete  continue to develop.  We face  competition  from
technologically  sophisticated  companies,  many  of  which  have  substantially
greater technical, financial, and marketing resources. In some cases, we compete
with entities that have pre-existing  relationships with potential customers. As
the national  documentation  production  market  expands,  we expect  additional
competitors to enter the market.  However,  to date we have been able to compete
because our products combine  technologies  and features that provide  customers
with a complete and comprehensive solution. There can be no assurance,  however,
that other companies will not offer similar products in the future.

         In the passport production and national identification card markets, we
compete with local governments and  government-owned  or private sector security
printing   companies.   These   companies   have  either  adapted  new  printing
technologies to the passport  production  market or use the same technologies as
we do. These companies include Canadian Bank Notes; Thomas De la Rue, a publicly
held English  company;  Giesecke & Devrient GmbH, a German  company;  3M Inc., a
publicly-held  American  company;  Setec Oy, a  Finnish  company  that  produces
passports  using laser engraving


                                       25
<PAGE>

technology;  Toppan, a Japanese company that  manufactures  laser printers;  and
American Banknote  Corporation.  We are able to compete to date on the basis of,
among other things, our ability to produce national  identification cards of any
size that feature  high-speed laser printing on Teslin (R) and polyester,  which
provides  enhanced  security  and  significant  durability.   There  can  be  no
assurance,  however, that other companies will not offer similar products in the
future.

         We also compete with system  integrators such as EDS, Unisys,  Siemens,
TRW,  Lockheed-Martin and IBM, which act as prime integrators in connection with
government agreements.  These system integrators,  however, sometimes act as our
partners when we participate in consortiums led by, or including, one or more of
these system integrators.

         In  projects  where   customers   require   biometric  data  collection
technology, we compete with automatic fingerprint identification system, or AFIS
providers  such as  Lockheed-Martin,  Printrak  International  (Motorola),  TRW,
Cogent Technology,  Sagem Morpho of France and NEC of Japan. AFIS suppliers tend
to  position  themselves  as prime  integrators  on  turnkey  projects.  We have
developed  integration  capabilities  with AFIS systems and can print  encrypted
AFIS data onto our national identification cards and passports.

         In the emerging market for contactless  smart cards for use in national
documentation systems, we compete with companies such as Schlumberger,  Gempluss
and Orga Cards,  which  supply  smart cards for  commercial  applications  using
polyvinylchloride,  or PVC, and other  material  platforms;  Giesecke & Devrient
Oberthur,  which  supplies  smart cards;  ODS Landis & Gyr and Maurer,  a German
company,  which  produces  laser  engraved  polycarbonate  cards;  Nova Card and
Amatech,  German companies,  and Austrian Cards, an Austrian company, which also
use  antenna  winding  technology,  PET  cards and sell  contactless  production
equipment;  Muhlbauer and Meltzer,  German  companies  which are  competitors in
manufacturing contactless equipment; and Bull and De La Rue, which is engaged in
the business of printing money, passport and other secured documents.

INTELLECTUAL PROPERTY

         Our  ability to  compete is  dependent  on our  ability to develop  and
maintain the proprietary aspects of our technology.  We rely on a combination of
trademark,  copyright,  trade  secret  and  other  intellectual  property  laws,
employee  and  third-party   nondisclosure   agreements,   licensing  and  other
contractual  arrangements and have also applied for patent protection to protect
our proprietary  technology and intellectual  property.  These legal protections
afford only limited  protection for our proprietary  technology and intellectual
property.

PATENTS

         We currently have three  registered  patents in Israel,  one in Europe,
one in the  United  States,  one in Hong  Kong,  one in  Ukraine  and two patent
applications pending in the United States and Europe and other jurisdictions for
technology  related to our smart card  technology.  We intend to file additional
patent applications when and if appropriate.  There is no guarantee that patents
will  arise  from our  applications  or, if  patents  do arise,  that we will be
afforded proprietary protection should claims arise.

         In addition,  we recognize  that our existing  patents  provide us only
limited  protection.  Moreover,  not all countries  provide legal  protection of
proprietary  technology to the same extent.  There can be no assurance  that the
measures  taken by us to protect  our  proprietary  technologies  are or will be
sufficient to prevent  misappropriation  of our technologies or portions thereof
by  unauthorized  third parties or independent  development by others of similar
technologies  or  products.  In  addition,  regardless  of whether our  products
infringe on  proprietary  rights of third  parties,  infringement  or invalidity
claims may be asserted or prosecuted  against us and we could incur  significant
expenses in  defending  them.  Our costs  could also  increase if we have to pay
license fees as a result of these claims.

LICENSES

         We license  technology  and  software,  such as  operating  systems and
database  software  from third  parties  for  incorporation  into our smart card
systems  and  products  and we expect to  continue  to enter into these types of
agreements  for  future  products.  Our  licenses  are either  perpetual  or for
specific terms.

GOVERNMENT REGULATION

         Some of our  contracts  relate to projects  that have elements that are
classified for national security reasons. Although most of our contracts are not
themselves classified,  persons with high security clearances are often required
to  perform  portions  of the  contracts.  We  believe  that our  employment  of
personnel with high security  clearances is helpful in


                                       26
<PAGE>

obtaining  such  contracts.  Doing  business  with  governments  is complex  and
requires the ability to comply with intricate  regulations and satisfy  periodic
audits.

         Our smart  card  readers  must  comply in the  United  States  with the
regulations  of the Federal  Communications  Commission,  or the FCC,  which may
require  certification,  verification  or registration of the equipment with the
FCC.  Certification and verification of new equipment requires testing to ensure
the equipment's compliance with the FCC's rules. In addition, the equipment must
be labelled  according to the FCC's rules to show  compliance  with these rules.
Electronic  equipment  permitted or authorized to be used by the FCC through our
certification or verification  procedures must not cause harmful interference to
licensed  FCC  users,  and it is subject to radio  frequency  interference  from
licensed  FCC users.  To date,  our smart card readers  have  complied  with the
regulations  of the FCC;  however,  there  can be no  assurance  that  they will
continue to do so in the future.

LEGAL PROCEEDINGS

         Other than as described  below,  there are no materials  pending  legal
proceedings in which we are a party or of which our property is subject.

         In  April  2004,  we  were  informed  by the  International  Commercial
Arbitration   Court  at  the   Ukrainian   Chamber  of  Commerce   and  Industry
("Arbitration  Court") that the Department for Resources  Supply of the Ministry
of Internal  Affairs of Ukraine (the  Ministry)  had filed with the  Arbitration
Court a statement of claim to declare that  Contract No.  10/82,  dated April 9,
2002  between  SuperCom  and the  Ministry as void due to defaults in the tender
proceedings  under  which the  contract  had been  awarded to  SuperCom.  We are
currently  handling  this claim and the  options  available  to us. We  strongly
believe  that the claim has no merits  and we intend to  vigorously  defend  the
validity of the contract.

         On November 10, 2003, Supercom Slovakia, a subsidiary (66%) of Supercom
Ltd.,  received an Award by the  International  Arbitral  Centre of the Austrian
Federal Economic  Chamber ("IAC"),  in the case against the Ministry of Interior
of the Slovak  Republic which refers to the agreement on delivery of Technology,
Cooperation and Services signed on March 17, 1998. Upon the Arbitral Award,  the
Ministry of Interior of the Slovak  Republic  has been  ordered to pay  Supercom
Slovakia  the amount of SKK  80,000,000  (Approximately  US $2.27  million).  In
addition,  the  Ministry of Interior of the Slovak  Republic has been ordered to
pay the costs of arbitration in the amount of EUR 42,716 and Supercom Slovakia's
legal fees in the amount of EUR 63,611.  The  Ministry of Interior of the Slovak
Republic has the right to appeal in the Austrian Courts within 3 months from the
date of this  award on only  legal  procedures.  We have  begun the  enforcement
procedure of the arbitral  award and in parallel,  we have  indirectly  received
information  that the  Ministry of Interior of the Slovak  Republic has filed an
appeal.

         On July 14, 2003,  Mr.  Yaacov  Pedhatzur,  an Israeli  citizen filed a
complaint  against  us,  in the  Magistrate's  Court of Tel  Aviv,  Israel.  The
plaintiff  claims  that we owe him NIS  250,000  (Approximately  US  $54,550) in
commissions  allegedly due for his part in establishing business connections for
us in Eastern Asia during the years 1993-1998. We plan to contest this claim.

         On December  12, 1999,  Secu-Systems  filed a lawsuit with the District
Court in  Tel-Aviv-Jaffa  against  us and  InkSure  Ltd.  (a former  subsidiary)
seeking a permanent  injunction and damages.  The plaintiff asserted in its suit
that the printing method applied to certain products that have been developed by
InkSure  Ltd.  constitutes  inter  alia:  (a) the  breach  of a  confidentiality
agreement  between the plaintiff and us; (b) unjust enrichment of us and InkSure
Ltd;  (c) breach of  fiduciary  duties owed to the  plaintiff  by us and InkSure
Ltd.,  and (d) a tort  of  misappropriation  of  trade  secrets  and  damage  to
plaintiff's property.  Secu-Systems,  based on such allegations, asked the court
to order the Company and InkSure to: (i) cease any activity  which  involves the
plaintiff's  confidential  information;   (ii)  furnish  the  plaintiff  with  a
certified  report detailing all profits derived by us and InkSure Ltd. from such
activity;  (iii) pay the plaintiff an amount equal to all such profits, and (iv)
pay  the   plaintiff   additional   damages  in  the  amount  of  NIS   100,000.
Alternatively, the plaintiff asked the court to declare that the above-mentioned
products  are owned by the  plaintiff  and  InkSure in equal  parts and that the
plaintiff is entitled to 50% of all profits  derived  therefrom,  in which case,
the plaintiffs  asked that we and InkSure  allocated 50% of the profits from the
printing method at issue.

         Based upon the facts known to us and those  provided  by InkShure  Ltd.
and our legal advisors  advice which is based,  inter-alia,  on said facts,  our
management  is of the opinion that,  the prospects are favorable  that the court
will not grant the permanent injunction or award damages of a substantial amount
in connection with the litigation.  Accordingly,  our management did not provide
for such potential liability.


                                       27
<PAGE>

C.  ORGANIZATIONAL STRUCTURE

     The diagram below shows SuperCom  Ltd.'s holdings in its  subsidiaries  and
affiliates as of March 31, 2004:

                                 -------------
                                    SUPERCOM
                                      LTD.
                                 -------------

       ------------------------------------------------------------------
       100%                 100%                 66%                  40%
 -----------------    -----------------   -----------------    -----------------
     SUPERCOM             SUPERCOM,            SUPERCOM               CT
 ASIA PACIFIC LTD.           INC.            SLOVAKIA A.S.       CARDTECH LTD.
 -----------------    -----------------   -----------------    -----------------

         As part of our  reorganization  plan, we have made a strategic decision
to focus on our core business and shut down all  operations  that are not a part
thereof.  As a result, we liquidated Genodus Inc. and its subsidiary;  Kromotech
Inc.  and  its  subsidiary,  both  of  which  developed  technology  used in our
business,  which  we  currently  own,  and  sold all of our  equity  in  InkSure
Technologies, Inc. and its subsidiaries.

SUPERCOM ASIA PACIFIC LIMITED ("SAP")

SAP, registered in Hong Kong, is responsible for our sales and marketing efforts
in the Far East. SAP was 80% owned by us and 20% by Chandler Technology Limited,
a company owned by SAP's former managing director,  Thomas Chan. On November 17,
2003  we  entered  into  an  agreement  with  Chandler  Technology  Limited  for
purchasing  Chandler  Technology's shares in SAP. SAP is currently 100% owned by
us.

C.T. CARD TECH TECHNOLOGIES (1994) LTD. ("CT CARD TECH")

CT Card Tech,  incorporated  in Israel in 1994, is responsible for our sales and
marketing  activities  in the former  Soviet  Union  (other than the Ukraine and
Moldova).  CT Card  Tech is 40%  owned  by us and 60%  owned  by CT Card  Tech's
managing director.

SUPERCOM SLOVAKIA A.S. ("SUPERCOM SLOVAKIA")

SuperCom  Slovakia,  incorporated  in Slovakia,  was  established to implement a
national documentation project in the Republic of Slovakia. SuperCom Slovakia is
66% owned by us and 34% owned by EIB Group a.s., a privately held Czech company.

SUPERCOM, INC.

SuperCom,  Inc.,  incorporated  in Delaware,  is  responsible  for our sales and
marketing efforts in the United States. SuperCom, Inc. is 100% owned by us.

D.  PROPERTY, PLANTS AND EQUIPMENT

         We do not own any real estate property.

         We  currently  lease   approximately  1,844  square  meters  facilities
Ra'anana,  Israel.  The lease for  substantially  all of this  space  expires in
August  2005.  We sublet  space in this  facility  to CT Card  Tech,  one of our
subsidiaries.

         SuperCom  Asia  Pacific's  leases  approximately  200 square  meters of
office space in Hong Kong, and SuperCom,  Inc. leases  approximately  200 and 30
square meters of office space in New York and Washington, D.C., respectively.


                                       28
<PAGE>

         The total  annual  rental fee for 2001,  2002 and 2003 was US$ 571,000,
US$ 414,121 and US$ 311,804,  respectively, and was linked to the Consumer Price
Index in the United States.  The total annual lease commitments for 2004 are US$
370,000.

         All assets are held in the name of SuperCom Ltd. and its  subsidiaries.
The following table details our fixed assets as of December 31, 2003:

                                                           DECEMBER 31,
                                                         ---------------
                                                          2002     2003
                                                         ------   ------
                                                       (IN THOUSANDS OF US
         COST:                                               DOLLARS)
           Computers and peripheral equipment            $2,287   $2,281
           Office furniture and equipment                   410      408
           Leasehold improvements                         1,027    1,107
                                                         ------   ------

                                                          3,724    3,796
                                                         ------   ------
         ACCUMULATED DEPRECIATION:
           Computers and peripheral equipment             1,423    1,412
           Office furniture and equipment                   164      192
           Leasehold improvements                           257      516
                                                         ------   ------

                                                          1,844    2,120
                                                         ------   ------

         Depreciated cost                                $1,880   $1,676
                                                         ======   ======

              Depreciation  expenses for the years ended December 31, 2001, 2002
              and 2003 were $ 372,000, $ 442,000 and $ 371,000, respectively.


                                       29
<PAGE>

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

         The following  section should be read in  conjunction  with the audited
financial statements and notes thereto for the year ended December 31, 2003, and
the financial  years ended December 31, 2003 and 2002,  which have been prepared
in  accordance  with U.S.  GAAP and which are  included  in Item 18. Some of the
statements  contained in this  section  constitute  forward-looking  statements.
These statements relate to future events or to our future financial  performance
and involve known and unknown  risks,  uncertainties  and other factors that may
cause our actual results, levels of activity,  performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements express or implied by such forward-looking statements.

OVERVIEW

         We were  incorporated  under  the laws of the  State of Israel in 1988.
From our incorporation until 1999, we were a development-stage company primarily
engaged in research and development,  establishing  relationships with suppliers
and potential customers and recruiting  personnel.  During the fiscal year ended
December 31, 2002,  we completed  our  reorganization  plan which began in 2001.
According to such plan,  we decided to focus our  marketing and sales efforts on
the commercial  market with a new line of products,  including  SmartGate  2400,
EduGate,  DynaGate and Flight Gate, while still  maintaining our business in the
governmental market.

         During  fiscal  2002,  we sold our equity  interest in our  subsidiary,
InkSure Technologies, Inc., or InkSure, for which we received aggregate proceeds
of approximately $6,600,000 from the sale of shares.

         REVENUES

         The primary  products that we sell are smart card  systems,  smart card
production machines and raw materials used for the production of smart cards and
secured ID cards.  We derive the majority of our  revenues  during the first two
years of an agreement with a customer. This revenue is generated by the delivery
of the data collection and document  production  systems.  Following delivery of
such systems, the majority of revenues generated from the agreement results from
ongoing deliveries of raw materials for use with the installed systems.  We also
typically generate additional revenues from maintenance fees.

         Our systems are tailored to meet the specific  needs of our  customers.
In order to satisfy  these needs,  the terms of each  agreement,  including  the
duration of the agreement  and prices for our products and services  differ from
agreement to agreement.

         Additional  revenue is generated through licensing  technology,  mostly
with commercial customers.

         OPERATING EXPENSES

         Our costs associated with a particular  project may vary  significantly
depending  on the  specific  requirements  of the  customer and the terms of the
agreement,  as well as on the extent of the technology  licensing.  As a result,
our gross profits from each project may vary significantly.

         Our research and development expenses consist of salaries, raw material
and equipment costs, as well as financing research and development operations in
subsidiaries.


                                       30
<PAGE>

         NET INCOME

         Our  operating  results  are  significantly  affected  by,  among other
things,  the timing of  contract  awards and  performance  of  agreements.  As a
result,  our revenues  and income may  fluctuate  substantially  from quarter to
quarter, and comparisons over longer periods of time may be more meaningful. Our
operating  results are not seasonal because  contracts are awarded and performed
throughout the year. The nature of our expenses (including cost of revenues) are
mainly fixed or  semi-fixed  and any  fluctuation  in revenues  will  generate a
significant variation in gross profit and net income.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The preparation of financial  statements  requires us to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
the disclosure of contingent liabilities at the date of the financial statements
and the reported  amounts of revenues and expenses during the reporting  period.
On an ongoing basis,  we evaluate our estimates and judgments,  including  those
related to  revenue  recognition,  allowance  for bad debts,  and  valuation  of
inventories and impairment of long-lived assets.

         We base our estimates and  judgments on  historical  experience  and on
various other factors that we believe to be reasonable under the  circumstances,
the  results  of which form the basis for making  judgments  about the  carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Under different  assumptions or conditions,  actual results may differ
from these estimates.

         Our discussion  and analysis of our financial  condition and results of
operations are based on our consolidated  financial statements,  which have been
prepared in accordance  with  generally  accepted  accounting  principles in the
United States ("US GAAP"). Our significant  accounting  principles are presented
within Note 2 to our Consolidated Financial Statements. While all the accounting
policies impact the financial  statements,  certain policies may be viewed to be
critical.  These  policies are those that are most important to the portrayal of
our financial  condition and results of operations.  Actual results could differ
from  those  estimates.  Management  believes  that the  significant  accounting
policies which affect its more  significant  judgments and estimates used in the
preparation of the consolidated  financial  statements and are the most critical
to aid in fully  understanding  and evaluating our reported  results include the
following:

         o Revenue recognition
         o Allowance for doubtful accounts
         o Inventory valuation
         o Impairment of long-lived assets
         o Contingencies

         REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

         We generate  revenues  primarily from  governmental  projects sales and
commercial sales. We recognize revenues in respect of products when, among other
things,   we  have   delivered   the  goods  being   purchased  and  we  believe
collectability  to be reasonably  assured.  We do not grant a right of return to
our customers. We perform ongoing credit evaluations of our customers' financial
condition  and we require  collateral  as deemed  necessary.  An  allowance  for
doubtful  accounts is  determined  with respect to those  accounts  that we have
determined  to be doubtful of  collection.  If the  financial  condition  of our
customers  were to  deteriorate,  resulting in an impairment of their ability to
make payments, additional allowances would be required.

         INVENTORIES VALUATION

         At each  balance  sheet date,  we evaluate  our  inventory  balance for
excess quantities and obsolescence.  This evaluation  includes analyses of sales
levels by product line and  projection of future demand.  In addition,  we write
off inventories that we considered  obsolete.  Remaining  inventory balances are
adjusted to the lower of the cost or market  value.  If future  demand or market
conditions are  less  favorable  than  our  projections,   additional  inventory
write-downs  may be  required  and  would be  reflected  in cost of sales in the
period the revision is made.

         IMPAIRMENT OF LONG-LIVED ASSETS

         Long-lived  assets are  reviewed  for  impairment  in  accordance  with
Statement  of  Financial   Accounting  Standard  No.  144  "Accounting  for  the
Impairment  or  Disposal of  Long-Lived  Assets"  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable. Recoverability of the carrying amount 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


                                       31
<PAGE>

expected to be  generated  by the assets.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
selling costs.

         The determination of the value of such long-lived and intangible assets
requires  management to make assumptions  regarding  estimated future cash flows
and other factors to determine the fair value of the respective assets. If these
estimates or the related  assumptions change in the future, we could be required
to record impairment charges.  Any material change in our valuation of assets in
the future and any consequent  adjustment  for impairment  could have a material
adverse impact on our future reported financial results.

         CONTINGENCIES

From time to time, we are defendant or plaintiff in various legal actions, which
arise in the normal course of business. We are required to assess the likelihood
of any  adverse  judgments  or outcomes  to these  matters as well as  potential
ranges of probable losses.  A determination  of the amount of reserves  required
for these  contingencies,  if any,  which would be charged to earnings,  is made
after careful and considered  analysis of each  individual  action together with
our legal  advisors.  The required  reserves may change in the future due to new
developments  in each  matter or changes in  circumstances,  such as a change in
settlement strategy. A change in the required reserves would affect our earnings
in the period the change is made.

         RESULTS OF OPERATIONS

         The following table sets forth selected  consolidated  income statement
data for SuperCom for each of the three years ended December 31, 2001,  2002 and
2003 expressed as a percentage of total revenues.  Figures may not add up due to
rounding.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
                                                                                      2001              2002             2003
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
<S>                                                                                 <C>                <C>             <C>
Revenues                                                                              100%              100%             100%
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Cost of revenues                                                                      37.4              22.8             42.8
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Gross profit                                                                          62.6              77.2             57.2
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Operating expenses:
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
   Research and development                                                           17.8              16.6             12.7
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
   Selling and marketing, net                                                         67.2              35.2             41.8
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
   General and administrative                                                         52.3              24.8             25.2
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Total operating expenses                                                             137.3              76.6             79.7
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Operating income (loss)                                                             (74.7)               0.6           (22.5)
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Financial income (expenses), net                                                       1.8             (0.4)            (3.2)
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Other income (expenses), net                                                         (3.5)              77.3            (1.1)
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Income (loss) before income taxes                                                   (76.4)              77.5           (26.8)
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Equity in losses of affiliates and impairment, net of taxes                             --             (0.5)            (0.7)
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Net income (loss) from continuing operations                                        (76.4)              77.0           (27.5)
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Loss from discontinued operations                                                     18.7               5.3               --
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
Net income (loss)                                                                    95.1%             71.7%           (27.5)
-------------------------------------------------------------------------- ---------------- ----------------- ----------------
</TABLE>


A.  OPERATING RESULTS

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004

         REVENUES

         Our revenues for the three months ended March 31, 2004 were  $1,311,000
compared  to   $2,884,000   during  the  three  months  ended  March  31,  2003,
representing  a decrease of 54%.  The  decrease in revenues for the three months
ended  March 31,  2004 was  primarily  due to the  inclusion  of a  governmental
project in the revenues for the three months ended March 31, 2003.

         GROSS PROFIT

         Gross  profit for the three  months  ended March 31, 2004 was  $485,000
compared to a gross  profit of  $1,827,000  for the three months ended March 31,
2003,  representing  a decrease of 73%.  The gross  profit  margin for the three
months ended March 31, 2004  decreased by 26% (versus gross profit margin of 63%
for the three  months  ended March 31,  2003).


                                       32
<PAGE>

The  decrease  in  gross  profit  was   primarily  due  to  a  decrease  in  the
above-mentioned  governmental project revenues, which carried higher margins and
to an increase in commercial systems volume, which carry lower margins.

         NET LOSS

         Our net loss for the three  months  ended March 31,  2004 was  $780,000
compared to a net loss of $242,000  for the three  months  ended March 31, 2003.
This  increase  was  primarily  due to a decrease in revenues  and gross  profit
margins.

         EXPENSES

         Research and development  expenses for the three months ended March 31,
2004  totaled $194,000  compared  to $236,000 for the three  months  ended
March 31, 2003, representing a decrease of 18%.

         Sales and marketing  expenses for the three months ended March 31, 2004
totaled $557,000  compared to $1,287,000 during the three months ended March 31,
2003,  which  represents a decrease of 57%. This decrease in sales and marketing
expenses  for the three  months  ended March 31, 2004 was  primarily  due to the
decrease  in  sales  and  marketing  expenses  related  to  the  above-mentioned
governmental  project  revenues  somewhat  offset by the  expansion of marketing
activities related to commercial activity in the US and Israeli markets.

         General and  administrative  expenses  for the three months ended March
31, 2004  totaled  $503,000  compared to $501,000  during the three months ended
March 31, 2003, representing an increase of 1%.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

         REVENUES

         Our revenues in 2003 were $7,244,000  compared to $8,027,000 in 2002, a
decrease of 9%. The decrease  was  primarily  due to the  inclusion of InkSure's
revenues ($1,884,000) in the 2002 results of operations. Not including InkSure's
results of operations for 2002, revenues would have increased to $7,244,000 from
$6,143,000,  representing an increase of 18%. This increase was primarily due to
the  implementation  of a new 5-year  governmental  project in Africa,  plus the
expansion in the  commercial  markets  systems and their  implementation  during
2003.  The primary  increase  in  commercial  revenues  has come from the United
States,  Asia  Pacific  and the  Israeli  commercial  markets by the sale of our
automatic production line, SmartGate, EduGate and DynaGate systems. Our revenues
in the fourth quarter of 2003 included  $536,000 of revenue  related to the sale
of a production line to a customer, who is also a distributor of our products in
the United States, which is to be paid to us over a period of four years.

         GROSS PROFIT

         Our gross profits in 2003 were $4,142,000  compared to gross profits of
$6,197,000 in 2002, a decrease of 33%. The gross profit margin for the year 2003
decreased  by 20% as  compared  to 77% in 2002.  The  decrease in our 2003 gross
profit was primarily due to the inclusion of InkSure's gross profit ($1,613,000)
in the 2002 results of operations. Not including InkSure's results of operations
for 2002,  gross profit  would have  decreased to  $4,142,000  from  $4,584,000,
representing a decrease of 9%. This decrease was primarily due to an increase in
the volume of commercial systems, which carries lower margins.

         NET INCOME

         Our  net  loss in 2003  was  $1,995,000  compared  to a net  income  of
$5,750,000  in 2002  ($6,203,000  booked  as other  income  originated  from the
divestment of the InkSure  shares and net income of InkSure's  activities in the
amount of  $294,000).  This was  primarily  due to a  decrease  in gross  profit
margins and an increase in our sales and marketing expenses in the United States
and  Israeli  markets,  as well  as in the  international  governmental  project
market.  Not including  InkSure's  influences on 2002 net income,  2003 net loss
would have increased to $1,995,000  from $747,000,  representing  an increase of
167%.  This  increase in our net loss was  primarily  due to a decrease in gross
profit margins and an increase in our sales and marketing expenses in the United
States and Israeli markets as well as our management's  decision to increase our
doubtful  accounts by  $700,000.  Such net  provision  of $700,000  for doubtful
accounts  results from the aggregate  amount of  $2,133,000  owed by the Ukraine
government  reduced by the  elimination of our obligation to pay  commissions to
the distributor that mediated this agreement in the amount of $1,400,000.


                                       33
<PAGE>

         EXPENSES

         Our research and development expenses in 2003 were $918,000 compared to
$1,334,000  in 2002,  a  decrease  of 31%.  The  decrease  in the  research  and
development  expenses was primarily  due to the inclusion of InkSure's  research
and  development  expenses  ($330,000)  in the 2002 results of  operations.  Not
including  InkSure's  results of operations for 2002,  research and  development
expenses  would have  decreased  to $918,000  from  $1,004,000,  representing  a
decrease of 9%.

         Our selling and marketing expenses in 2003 were $3,026,000  compared to
$2,828,000 in 2002, an increase of 7%. The increase in the selling and marketing
expenses was due to the inclusion of InkSure's  selling and  marketing  expenses
($788,000) in the 2002 results of operations. Not including InkSure's results of
operations  for 2002,  selling and marketing  expenses  would have  increased to
$3,026,000  from  $2,040,000,  representing an increase of 48%. The increase was
primarily  due to a net  provision of $700,000  relating to the Ukraine  project
implementation  and the expansion of marketing  activities related to commercial
activity in the US and the Israeli markets.

         Our  general  and  administrative  expenses  in  2003  were  $1,829,000
compared to  $1,988,000  in 2002,  a decrease of 8%. The decrease in the general
and  administrative  expenses was  primarily  due to the  inclusion of InkSure's
general  and  administrative   expenses   ($189,000)  in  the  2002  results  of
operations.  Not including InkSure's results of operations for 2002, general and
administrative  expenses  would have  increase to  $1,829,000  from  $1,799,000,
representing an increase of 2%.

         Our operating  expenses in 2003 were $5,773,000  compared to $6,150,000
in 2002, a decrease of 6%. The decrease in operating  expenses was primarily due
to the  inclusion  of  InkSure's  operating  expenses  ($1,307,000)  in the 2002
results of operations.  Not including  InkSure's results of operations for 2002,
operating   expenses  would  have  increase  to  $5,773,000   from   $4,843,000,
representing  an  increase  of  19%.  This  increase  was  primarily  due to the
above-mentioned increase in selling and marketing expenses.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

         REVENUES

         Our revenues in 2002 were $8,027,000 compared to $6,889,000 in 2001, an
increase of 17%.  The increase was  primarily  due to a growth in  international
governmental projects. The delivery of the first phase of the Ukraine ID project
was a major element of this growth.  We also launched a new series of commercial
access control products,  including the SmartGate 2400 system.  This was part of
our new commercial  marketing  strategy to supplement our on-going  governmental
projects.

         GROSS PROFIT

         Our gross profits in 2002 were $6,197,000  compared to gross profits of
$4,315,000  in 2001,  an increase of 44%. The gross  profit  margin for the year
2002 increased by 14% as compared to 63% in 2001. The increase in our 2002 gross
profit was primarily due to high gross  profits  resulting  from the delivery of
the first phase of the  Ukraine ID project  and from a one-time  increase of raw
materials sales with high gross margins sold in 2002 compared to 2001.

         NET INCOME

         Our net  income  in  2002  was  $5,750,000  compared  to a net  loss of
$6,548,000 in 2001. This increase was primarily due to our divestment of InkSure
for an aggregate consideration of $6,600,000.  Commencing with the quarter ended
June 30,  2002,  the  financial  results  of  InkSure  are not  included  in our
financial  statements.  For the  fiscal  years  2002,  2001 and 2000,  InkSure's
operations   generated   revenues  of   $1,880,000,   $1,760,000  and  $140,000,
respectively.

         EXPENSES

         Our research and development  expenses in 2002 were $1,334,000 compared
to  $1,225,000  in 2001,  an increase of 9%. The  increase in the  research  and
development  expenses was mainly due to the intensive  research and  development
activities pursued by InkSure.

         Our selling and marketing expenses in 2002 were $2,828,000  compared to
$4,628,000 in 2001, a decrease of 39%. The decrease in the selling and marketing
expenses was  primarily as a result of InkSure and another of our  subsidiary's,
SuperCom  SmartCards  Inc.  reduced  expenses in connection  with its efforts to
penetrate  new markets in the United  States and Europe which have been cut back
since the fourth quarter of 2001.


                                       34
<PAGE>

         Our  general  and  administrative  expenses  in  2002  were  $1,988,000
compared to  $3,604,000  in 2001, a decrease of 45%. The decrease in the general
and  administrative  expenses was due to our cost-cutting  plan that resulted in
increased efficiency.

         Our operating  expenses in 2002 were $6,150,000  compared to $9,460,000
in 2001, a decrease of 35%. The decrease in operating expenses was primarily due
to our  reduction of general and  administrative  expenses and the  exclusion of
InkSure's financial results from our financial reports.  The decrease in general
and  administrative  expenses was due to a  cost-cutting  plan that  resulted in
increased efficiency.

         DISCONTINUED OPERATIONS

         As part of our reorganization plan, we have made a decision to focus on
our core  business  and to shut down all  operations  not  included  in our core
business that result in losses. As a result, we closed SuperCom SmartCards Inc.,
Genodus Inc. and its subsidiary; and Kromotec Inc. and its subsidiary. Loss from
discontinued  operations for 2002 totaled  $427,000,  compared to $1,288,000 for
2001.


B.  LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating  activities from  continuing  operations for
the period  ended March 31, 2004 was $630,000  compared to $347,000  used during
the period ended March 31, 2003,  an increase of $283,000 or 81%.  This increase
was primarily as a result of an increase in loss from operational activities.

         Net cash provided by investing activities during the period ended March
31, 2004 was $252,000  compared to $482,000 used in investing  activities during
the period ended March 31,  2003,  an increase of  $734,000.  This  increase was
primarily due to an  investment  of $791,000 in short term bank deposits  during
the period  ended March 31,  2003 and to an  increase of $308,000 in  restricted
cash deposits during the period ended March 31, 2004.

         Net cash used in financing activities during the period ended March 31,
2004 was $462,000 compared to $97,000 provided during the period ended March 31,
2003, an increase of $559,000. This increase was primarily due to an increase in
net bank credit used during the period ended March 31, 2004.

         Net cash used in operating  activities from  continuing  operations for
the period ended December 31, 2003 was $2,152,000  compared to $1,876,000 during
the period  ended  December  31,  2002,  an increase  of  $276,000 or 15%.  This
increase  was  primarily  as a result of an  increase  in loss from  operational
activities. In additional to loss from operational activities, our net cash used
in operating  activities in the period ended December 31, 2003 and in the period
ended  December  31,  2002  was  influenced  by the  increases  in our  accounts
receivable  balances  during  the year 2002 due to long term  credit  sales.  In
addition,  during  the year 2003 our  revenues  included  $536,000  of  revenues
related to the sale of a production line to a customer which is to be paid to us
over a period of four years.  This  transaction  has  increased the cash used in
operating activities as compared to our loss from operational  activities during
the year 2003.

         Net cash used in investing  activities during the period ended December
31, 2003 was $1,539,000 compared to $5,596,000 provided by investing  activities
during the period  ended  December  31,  2002,  a decrease of  $7,135,000.  This
decrease was  primarily  due to an  investment  of $1,196,000 in short term bank
deposits  during the period ended  December 31, 2003 and to $4,352,000  proceeds
from the sale of the shares of our  subsidiary  Inksure  during the period ended
December 31, 2002.

         Net cash  provided  by  financing  activities  during the period  ended
December 31, 2003 was  $1,036,000  compared to $574,000  during the period ended
December 31, 2002,  an increase of $462,000.  This increase was primarily due to
an increase in net bank credit  provided  during the period  ended  December 31,
2003.

         As of December 31, 2003, our cash, short-term deposits,  and marketable
debt securities  totaled  $3,225,000,  compared to $5,176,000 as of December 31,
2002.

         Since  May 1999,  we have  funded  operations  primarily  through  cash
generated from our initial public offering on Nasdaq Europe in April 1999, which
resulted in total net proceeds of  approximately  $23,600,000  (before  offering
expenses),  our sale of  shares of our  subsidiary,  InkSure,  and,  to a lesser
extent,  borrowings  from financial  institutions.  As of December 31, 2003, our
principal  source of liquidity was  $3,225,000  of cash,  cash  equivalents  and
marketable  securities.  As of December  31,  2003,  we had  $2,318,000  of debt
outstanding  relating to obligations under our credit facility and an obligation
for severance pay to Israeli employees of $436,000 of which $333,000 is provided
by monthly  deposits  with  severance  pay funds,  insurance  policies and by an
accrual. As of December 31, 2003, our accumulated net deficit was $18,242,000.

         In April  1999,  we  entered  into an  underwriting  agreement  to sell
2,526,316  ordinary shares plus an additional 631,579 ordinary shares offered by
selling shareholders at an offering price of $10.00 per share for gross proceeds
to  us  of  approximately  $25,300,000.   The  gross  proceeds  were  offset  by
underwriting  fees of $1,700,000 and offering  expenses of $1,250,000 so that we
received net proceeds of $22,350,000 from this public offering.

         We anticipate  that our capital  resources for 2004 will come primarily
from credit facilities. Our budget relies on our existing projects and estimated
commercial  revenues.  We project that our expenses for 2004 will be higher than
our revenues.  As we reach the desired level of  technology  advancement  in our
products, we anticipate that no major expenses will be needed in connection with
research and development  efforts.  As of December 31, 2003, we had credit lines
from


                                       35
<PAGE>

several banks in the aggregate amount of $ 1,957,000  (including long-term loans
credit lines in the amount of $719,000 of which  $628,000 was used),  of which $
1,238,000 is denominated in NIS and bears interest at the rate of Prime,  in the
range of +1% to +3%, and $ 719,000 is  denominated in dollars and bears interest
at the rate of LIBOR in the range of +2.5% to +3.2%.

         The weighted  average  interest rate on the credit lines as of December
31, 2002 and 2003 was approximately 11.71% and 7.7%, respectively.

         In addition,  we received from a bank short-term loans in the amount of
$ 500,000 in order to secure an agreement with a customer.  The average interest
rate on the loans as of December 31, 2003, was approximately 5.7%.

         We had an unused  credit  facility  in the  amount of  approximately  $
139,000 as of December  31, 2003 (there is no fee for the unused  portion of the
credit facility).

         Since the  quarter  ended  December  31,  2001,  we have  continued  to
implement our comprehensive  cost-cutting plan,  including the reorganization of
our  headquarters  and  our   subsidiaries,   the  freezing  of   non-profitable
activities,  and staff reductions. The first results from this cost-cutting plan
were visible in the fiscal quarter ended December 31, 2001 and have continued in
2002 and in 2003.

         We believe that our existing  capital  resources  will be sufficient to
fund our planned  operations through at least the next twelve months. We will be
required to raise  additional  funds to meet our  long-term  planned  goals.  We
intend to consider other alternatives for financing, which may include public or
private  equity  financings.  There can be no  assurance  that  such  additional
financing, if at all available, can be obtained on terms acceptable to us. If we
are unable to obtain such additional  financing,  future operations will need to
be scaled back further or discontinued.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

         The  primary  objective  of our  investment  activities  is to preserve
principal  while  at the  same  time  maximizing  the  income  we  receive  from
investments  without  significantly  increasing  risk. Some of the securities in
which we may invest may be subject to market  risk.  This means that a change in
prevailing  interest rates and foreign  currency rates against the NIS may cause
the value of the investment to fluctuate. For example, if we purchase a security
that was issued with a fixed  interest  rate and the  prevailing  interest  rate
later rises, the value of our investment will probably decline. To minimize this
risk, we intend to maintain our  portfolio of cash  equivalents  and  short-term
investments  in a  variety  of  securities,  including  U.S.  dollars,  NIS bank
deposits,  money market funds and government and non-government debt securities.
In  general,  money  market  funds are not  subject to market  risk  because the
interest paid on such funds fluctuates with the prevailing interest rate.

         Our  financial  market risk  includes  risks  related to  international
operations and related foreign  currencies.  We anticipate that sales outside of
North  America  will  continue  to  account  for a  significant  portion  of our
consolidated  revenue in 2003.  To date,  most of our sales have been  valued in
U.S. dollars. In future periods, we expect our sales to be principally valued in
U.S. dollars, eliminating foreign currency exchange risk.

         We value  expenses  of some of our  international  operations,  such as
Israel and Hong Kong, in each country's local currency and therefore are subject
to foreign currency exchange risk.  However,  through December 31, 2003, we have
not experienced any significant negative impact on our operations as a result of
fluctuations in foreign  currency  exchange  rates,  although we have incurred a
loss of $98,000 in the year  ended  December  31,  2003 due to  fluctuations  in
foreign  exchange rates. We do not use financial  instruments to hedge operating
expenses in Israel or Hong Kong that are valued in local currency.  We intend to
continue to assess the need to utilize  financial  instruments to hedge currency
exposures on an ongoing basis.

         We do not use derivative financial  instruments for speculative trading
purposes, nor do we hedge our foreign currency exposure to offset the effects of
changes in foreign exchange rates.

         Our  exposure to market  risks for changes in  interest  rates  relates
primarily to our credit  facility.  At December 31, 2003,  our financial  market
risk  related to this debt was  immaterial.  Our general  policy is to limit the
risk of  principal  loss and  ensure the safety of  invested  funds by  limiting
market and credit risk.


                                       36
<PAGE>

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

         Because  the  majority  of our revenue is paid in or linked to the U.S.
dollar,  we believe  that  inflation  and  fluctuation  in the  NIS/U.S.  dollar
exchange rate has no material effect on our revenue.  However,  a portion of the
cost of our  Israeli  operations,  mainly  personnel  and  facility-related,  is
incurred in NIS.  Because some of our costs are in NIS,  inflation in Israel and
U.S. dollar exchange rate fluctuations do have some impact on expenses and, as a
result,  on net  income.  Our NIS  costs,  as  expressed  in U.S.  dollars,  are
influenced  by the  extent to which any  increase  in the rate of  inflation  in
Israel is not offset,  or is offset on a delayed basis,  by a devaluation of the
NIS in relation to the U.S. dollar.

         In 2003, the rate of evaluation of the NIS against the U.S.  dollar was
7.5%   and  the   rate  of   deflation   was  2%.   It  is   unclear   what  the
devaluation/evaluation  rate  will be in the  future,  and we may be  materially
adversely  affected if inflation in Israel  exceeds the  devaluation  of the NIS
against  the U.S.  dollar,  or if the  timing  of the  devaluation  lags  behind
increases in inflation in Israel.

         We do not  engage in any  hedging  or other  transactions  intended  to
manage  risks  relating  to foreign  currency  exchange  rate or  interest  rate
fluctuations.  At December  31, 2003,  we did not own any market risk  sensitive
instruments  except for our  revolving  line of credit.  However,  we may in the
future undertake hedging or other similar  transactions or invest in market risk
sensitive instruments if management determines that it is necessary or advisable
to offset these risks.

C.  RESEARCH AND DEVELOPMENT

         Our past research and development efforts have helped us to achieve our
goal of offering our customers a complete line of products and solutions. As a
result of our past efforts, we reduced the number of employees in our research
and development activities to ten people as of December 31, 2003. We spent $1.2
million, $1.3 million and $0.9 million on research and development in 2001, 2002
and 2003, respectively. These amounts were spent on the development or
improvement of our technologies and products, primarily in the areas of an
automatic contactless smart card production line, data capture, management
software, population registry software packages, security printing, contactless
smart cards and document authentication. We will continue to research and
develop new security and identification features through laser printing and
pre-printing, create new personalization methods for contactless smart cards,
develop a range of smart card applications and continue to develop our automatic
contactless smart card production line. There can be no assurance that we can
achieve any or all of our research and development goals.

D.  TREND INFORMATION

         Our  quarterly  results of  operations  may be  subject to  significant
fluctuations due to several factors, primarily the timing of large orders, which
represent a significant  percentage of our revenues,  customer budget cycles and
impact on the timing for buying decisions, competitive pressures, the ability of
our partners, distributors and system integrators to become effective in selling
and marketing our products, as well as other factors.

         Historically, our revenues have been concentrated in a few large orders
and a small number of customers, a trend that has been increasing over time.

         For information about our expectations regarding our future cost of
revenues, future operating expenses and liquidity and capital resources, please
see the discussion under the "Risk Factors" section of Item 3 and the "Operating
Results" section and the "Liquidity and Capital Resources" section of Item 5.
Historically, our revenues have been concentrated in a few large orders and a
small number of customers, a trend that has been increasing over time. See the
paragraph headed risks "We derive a substantial portion of our revenue from a
small number of customers..." in the Risk Factors set forth in Item 3 above.

         During 2003, we have seen an increase in the percentage of our revenue
derived from our growing partnerships, distribution and systems integration
network. We continue to expect to benefit from marketing programs and leads
generated by this network, as well as sales opportunities identified by them. We
intend to expand our marketing and implementation capacity through these third
parties, including vendors of complementary products and providers of service
applications. By employing third parties in the marketing and implementation
process, we expect to enhance sales by taking advantage of the market presence
of these third parties.

         Our development and marketing efforts for our solutions and products
platforms are aimed at addressing several systems and service trends we see
developing in the industry:

         The events of 9/11 and subsequent terrorist activities have created a
demand for better security systems and services. Access and asset control are
now the leading security concerns in the commercial and governmental
enterprises.


                                       37
<PAGE>

This has created an increasing demand, both for physical security access to
buildings and logical security access to corporate networks. We believe that
SuperCom's contactless smart cards are an optimal solution to these problems as
they deliver stronger authentication of network users and they store personal
data for highly secure physical access control.

         In 2003, the ICAO (International Civil Aviation  Organization) mandated
the inclusion of biometric  authentication  technology  in passports.  The smart
passport  trend,  from our point of view,  will have an apparent  magnitude  and
leverage  during the next few years.  We believe  that this  leading  trend will
significantly  influence our business  forecast,  as well as influence  vertical
markets in the smart card industry.  We are currently involved in pilot projects
for smart  passports  and due to this,  we  believe  that we have a  competitive
advantage and will be a part of this trend.

         Our  smart  passport  technology  meets  the  requirements  of  storing
biometric  information  in a  passport  and in  addition  offers  the  option of
multiple  security  levels.  We are  aggressively  bidding  on a number of large
projects and expects fair results.

         As  a  result  of  these  trends  and  combined  with  SuperCom's  core
strengths, we are focusing on products and solutions that have been indicated to
be significantly  influential in the present and future markets.  We expect that
our revenues in 2004 will be primarily derived from:

         o   Smart passport technologies;
         o   High security solution integration;
         o   Expertise in multi-application smart  cards, integration  know-how;
             and
         o   Extensive experience with the government ID market.

         We believe  that  through the  distribution  and  systems'  integration
network  implemented  this  year,  and the  recognition  of our  technology  and
backlog,  we will meet our strategic  business plan and have the  opportunity to
emerge as a key player in governmental and commercial markets.

E.  OFF-BALANCE SHEET ARRANGEMENTS

         We do not have any material  off-balance sheet  transactions and we are
not party to any material off-balance sheet transactions.

 F.  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

         The  following  table   summarizes  our  contractual   obligations  and
commitments as of December 31, 2003 that will require  significant  cash outlays
in the future:

<TABLE>
<CAPTION>
---------------------------------------- ----------------- -------------- -------------- --------------- -------------
        CONTRACTUAL OBLIGATIONS               TOTAL            2004           2005            2006         2007 AND
                                                                                                            BEYOND
---------------------------------------- ----------------- -------------- -------------- --------------- -------------
<S>                                      <C>               <C>            <C>            <C>
Long term debt                           $ 628,000         $ 441,000      $ 187,000
---------------------------------------- ----------------- -------------- -------------- --------------- -------------
Capital Lease Obligations
---------------------------------------- ----------------- -------------- -------------- --------------- -------------
Operating Leases                         $ 1,032,000       $ 370,000      $ 354,000      $ 308,000
---------------------------------------- ----------------- -------------- -------------- --------------- -------------
Unconditional Purchase Obligations
---------------------------------------- ----------------- -------------- -------------- --------------- -------------
Total Contractual Cash Obligations       $ 1,660,000       $ 811,000      $ 541,000      $ 308,000
---------------------------------------- ----------------- -------------- -------------- --------------- -------------
</TABLE>

Long-term debt consists of amounts due to loans from banks, which is described
in Item 18, note 8 to the financial statements included in this Form 20-F.
Operating lease obligations represent commitments under several lease agreements
for our facilities and the facilities of certain subsidiaries. Total contractual
cash obligations represent outstanding commitments for loans from banks and
lease agreement for facilities. We are not a party to any capital leases.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
Associated with Exit or Disposal  Activities," which addresses significant issue
regarding the recognition,  measurement,  and reporting of costs associated with
exit and disposal activities,  including restructuring activities.  SFAS No. 146
requires that costs  associated  with exit or disposal  activities be recognized
when they are  incurred  rather than at the date of a  commitment  to an exit or
disposal  plan.


                                       38
<PAGE>

SFAS No. 146 is effective for all exit or disposal  activities  initiated  after
December  31,  2002.  We do not  expect the  adoption  of SFAS No. 146 to have a
material impact on our results of operations or financial position.

         In  November  2002,  the  FASB  issued  FASB   Interpretation  No.  45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees  of  Indebtedness  of  Others,  an  interpretation  of FASB
Statements  No. 5, 57, and 107 and  Rescission  of FASB  Interpretation  No. 34"
("FIN  No.  45").  FIN No.  45  elaborates  on the  disclosures  to be made by a
guarantor in its interim and annual  financial  statements about its obligations
under certain guarantees that it has issued.

         FIN No. 45 also clarifies that a guarantor is required to recognize, at
the inception of a guarantee,  a liability for the fair value of the  obligation
undertaken  in issuing the  guarantee.  FIN No. 45 does not prescribe a specific
approach for subsequently  measuring the guarantor's  recognized  liability over
the term of the related  guarantee.  It also  incorporates,  without change, the
guidance in FASB  Interpretation No. 34,  "Disclosure of Indirect  Guarantees of
Indebtedness of Others," which is being superseded. The disclosure provisions of
FIN No. 45 are effective for financial  statements of interim or annual  periods
that end after December 15, 2002 and the provisions for initial  recognition and
measurement are effective on a prospective  basis for guarantees that are issued
or modified after December 31, 2002,  irrespective of a guarantor's year-end. We
do not  expect  the  adoption  of FIN No.  45 to have a  material  impact on our
results of operations or financial position.

         In November  2002,  the  Emerging  Issues Task Force (EITF) of the FASB
reached  a  consensus  on  EITF  issue  No.  00-21,   "Accounting   for  Revenue
Arrangements  with Multiple  Element  Deliverables."  The issue addresses how to
account  for   arrangements   that  may  involve   multiple   revenue-generating
activities,  i.e., the delivery or performance of multiple  products,  services,
and/or rights to use assets. In applying this guidance,  separate contracts with
the same party,  entered into at or near the same time, will be presumed to be a
package,  and the  consideration  will be measured and allocated to the separate
units based on their  relative  fair values.  This  consensus  guidance  will be
applicable to agreements entered into in quarters beginning after June 15, 2003.
We will adopt this new  accounting  effective  July 1,  2003.  We are  currently
evaluating the impact of this change.

         We do not  expect  the  adoption  of EITF  issue  No.  00-21  to have a
material impact on our result of operations or financial position.

         In December 2003, the FASB issued  additional  guidance  clarifying the
provisions of FASB  Interpretation  No. 46,  Consolidation of Variable  Interest
Entities,  an  Interpretation  of ARB No. 51 ("FIN  46-R").  FIN 46-R provides a
deferral of FIN 46 for certain  entities  until  after  March 15,  2004.  FIN 46
requires  certain variable  interest  entities to be consolidated by the primary
beneficiary of the entity if the equity  investors in the entity do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated financial support from other parties. We do not expect the adoption
of FIN 46 to have a material impact on our consolidated financial statements.


                                       39
<PAGE>

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A.  DIRECTORS AND SENIOR MANAGEMENT.

         We are managed by our Board of Directors that, pursuant to our Articles
of Association,  must be comprised of between two and eight members. Members are
elected for a term ending at our next annual  general  meeting of  shareholders.
The Board of Directors elects one of its members to serve as the Chairman.

         The Board of  Directors  is composed as follows (as of the date of this
Form 20-F):

--------------------------------------------------------------------------------
   NAME                         AGE            POSITION
--------------------------------------------------------------------------------
   Eli Rozen                    49             Director, Chairman of the Board
--------------------------------------------------------------------------------
   Avi Landman                  49             Director
--------------------------------------------------------------------------------
   Menachem Meron               75             Director
--------------------------------------------------------------------------------
   Esther Koren                 35             External Director
--------------------------------------------------------------------------------
   Avi Elkind                   50             External Director
--------------------------------------------------------------------------------

ELI ROZEN is one of our co-founders and serves as a director and our Chairman of
the Board of  Directors.  Mr.  Rozen has served as the Chairman  since 2000.  In
1988,  Mr. Rozen joined  Electrocard  Ltd., our  predecessor,  and served as the
General Manager and a director until our  establishment in 1988. From 1988 until
2000, he served as our Chief  Executive  Officer and President.  Mr. Rozen has a
B.S. in  Industrial  Engineering  and  Management  from the Israel  Institute of
Technology.

AVI  LANDMAN  is one of our  co-founders  and serves as a member of the Board of
Directors and as the Research Manager.  Prior to joining us in 1988, Mr. Landman
worked  as a  computer  engineer  at Gal  Bakara  Ltd.  and  prior to that as an
electrical  engineer at Eltam Ltd. Mr.  Landman has a Bachelor of Science degree
in  Computer   Engineering  from  the  Israel  Institute  of  Technology  -  the
"Technion".

AVI ELKIND, an external  Director,  became a member of the Board of Directors on
July 25, 2000 and is a member of the remuneration committee as well as the audit
committee.  Since 1999, Mr. Elkind has been Chairman and Chief Executive Officer
of E.A. Elkind Ltd. Prior to that, from 1997 to 1999, he was the Chief Financial
Officer of  Pelephone  Communication  Ltd.  Mr.  Elkind  graduated  from  Hebrew
University  of  Jerusalem  in where he  holds  degrees  in  Social  Studies  and
Economics, Business Administration and International Affairs.

MENACHEM MERON became a member of the Board of Directors on July 25, 2000. Since
1968, Mr. Meron has been managing director of IFTIC Ltd., a consulting firm. Mr.
Meron  serves  as a  director  with the Polar  Investment  Company  Ltd.,  Magal
Securities Systems Ltd. and Paz Lubricants & Chemicals Ltd.

ESTHER KOREN DALAL has been a member of the Board of Directors of SuperCom  Ltd.
since May 2001.  Since  1999,  she has been a  partner  at Gross,  Kleinhendler,
Hodak,  Halevy,  Greenberg & Co., a large,  renowned Israeli law firm, where she
specializes  in matters  such as  securities,  corporate  law,  re-organization,
contract law and  transactions,  as well as taxation for large  corporations  in
Israel. She also lectures at the Tel Aviv University in the field of directorial
management since 1994.Mrs.  Koren Dalal holds an M.A. in Law, and a B.A. in Law,
Accounting and Economics, with all degrees from the University of Tel Aviv.

EXECUTIVE OFFICERS AND KEY EMPLOYEES

         Our  executive  officers  and  certain key  employees  who are not also
directors are:

--------------------------------------------------------------------------------
        NAME       AGE                      POSITION
--------------------------------------------------------------------------------
Avi Schechter      39      President, Chief Executive Officer
--------------------------------------------------------------------------------
Eli Basson         43      Vice President IPS (Int'l Project Solutions) Division
--------------------------------------------------------------------------------
Eyal Tuchman       36      Vice President, Chief Financial Officer
--------------------------------------------------------------------------------

AVI  SCHECHTER,  PRESIDENT AND CHIEF  EXECUTIVE  OFFICER,  is  SuperCom's  Chief
Executive  Officer and  President.  Mr.  Schechter has been our Chief  Executive
Officer and President since 2001. Mr. Schechter has many years of commercial and
managerial experience.  From March 2001 to November 2001, he served as the Chief
Executive Officer of Genodus


                                       40
<PAGE>

Inc., one of SuperCom's subsidiaries.  Mr. Schechter was in charge of developing
a generic platform that pioneered a simplified and complete  implementation of a
multitude  of  Enterprise  Application  Integration  projects.  Prior to joining
Genodus, from November 1998 to February 2001, he was the Chief Executive Officer
of E-com Global Electronic  Commerce,  a subsidiary of the Aurec group. Prior to
that,  Mr.  Schechter was the Chief  Executive  Officer of Tikal Ltd., a service
company, which provides medical information for insurance companies.  He holds a
B.A.  in  Economics  and  Sociology  from  Bar-Ilan  University  and an M.S.  in
Information Systems from Recanati School of Business, Tel-Aviv University.

ELI BASSON,  VICE PRESIDENT IPS (INT'L  PROJECT  SOLUTIONS)  DIVISIONMr.  Basson
entered his position  after serving as the Chief  Executive  Officer of Genodus,
Inc. from December 1999 to March 2001. Before joining Genodus,  Basson served as
our Vice President of Research & Development and  Operations.  From July 1994 to
July 1997, he was Vice President of Customer  Support for Eldor  Computers,  and
from  December  1992 to July 1994,  he was Deputy  Vice  President  of  Customer
Support and Response Center Manager at Orbotech (USA). Basson holds a Masters of
Science in Management  from Lesley College and a B.S. in Electrical  Engineering
from the Technion Israel Institute of Technology.

EYAL  TUCHMAN,  CPA,  VICE  PRESIDENT,  CORPORATE  FINANCE  AND CHIEF  FINANCIAL
OFFICER,  Mr.  Tuchman  has years of  experience  in  accounting  and finance in
publicly  traded  companies.  Prior to  joining  us in 2002,  he served as Chief
Financial  Officer  of Magam  Group,  a  company  traded on the  Tel-Aviv  Stock
Exchange,  from 1996 to 2002, and before that, was a Senior Auditor at Kessleman
& Kessleman  (today,  PriceWaterhouseCoopers),  one of the top five CPA firms in
Israel.  Mr.  Tuchman  holds a B.A. in  Economics &  Accounting  from Ben Gurion
University, as well as a C.P.A.

B.  COMPENSATION

The aggregate amount of compensation paid by us to our board members and the
following executive officers: (i) President and Chief Executive Officer; (ii)
Vice President, Projects and Chief Operating Officer; (iii) Chairman of the
Board of Directors; (iv) Vice President, Business Development and Marketing and
(v) Vice President, Corporate Finance and Chief Financial Officer (collectively,
the "Named Executive Officers") for the years ended December 31, 2003 was
approximately US $706,904.

         The following  table  summarizes  the  compensation  paid by us in U.S.
dollars to our board  members and  executive  officers in 2003 and share options
granted thereto in 2003:

BASE SALARY                         $660,000
OTHER BENEFITS                        47,000
                                      ------
TOTAL                               $707,000
                                    ========

NUMBER OF SHARE OPTIONS              870,981


         The following table sets forth,  with respect to each of our directors,
all remuneration paid by us during the fiscal year ended December 31, 2003:

<TABLE>
<CAPTION>
------------------------- --------------------------- --------------------- --------------------- --------------------
          NAME                       TITLE                 BASE FEE ($)          BENEFITS ($)           TOTAL ($)
------------------------- --------------------------- --------------------- --------------------- --------------------
  <S>                     <C>                                      <C>                     <C>                <C>
  Eli Rozen               Chairman of the Board and                144,000                 3,000              147,000
                          Board Member
------------------------- --------------------------- --------------------- --------------------- --------------------
  Avi Landman             Board Member                              73,000                14,000               87,000
------------------------- --------------------------- --------------------- --------------------- --------------------
  Avi Elkind              Board Member                               7,260                    --                7,260
------------------------- --------------------------- --------------------- --------------------- --------------------
  Menahem Meron           Board Member                              16,800                    --               16,800
------------------------- --------------------------- --------------------- --------------------- --------------------
  Ester Korren            Board Member                               8,500                    --                8,500
------------------------- --------------------------- --------------------- --------------------- --------------------
</TABLE>

         On January 26, 2003, at a special  general  meeting,  our  shareholders
approved  the grant to each of our  directors  who is not an external  director,
commencing on October 1, 2002, a monthly $1,000 fee  participation  remuneration
per  meeting  of the  Board of  Directors,  provided  however,  that each of the
directors who is not an external  director shall be entitled to an aggregate sum
of monthly remuneration and participation  remuneration of not more than $18,000
per year.


                                       41
<PAGE>

OPTION/SAR GRANTS DURING THE YEAR ENDED DECEMBER 31, 2003

         During the year ended December 31, 2003, no options were granted to the
Executive Officers.

AGGREGATED OPTION/SAR EXERCISES DURING THE YEAR ENDED DECEMBER 31, 2003 AND
FINANCIAL YEAR-END OPTION/SAR VALUES

The following table sets out (i) the number of Ordinary Shares issued to the
Named Executive Officers upon the exercise of options during the year ended
December 31, 2003 and the aggregate value realized upon such exercises; and (ii)
the number and value of unexercised options held by the Named Executive Officers
as at December 31, 2003:

<TABLE>
<CAPTION>
------------------------------------- ---------------- ------------------- ------------------- --------------------------
                                                                                                 VALUE OF UNEXERCISED
                                                                              UNEXERCISED            IN-THE-MONEY
                                        SECURITIES                            OPTIONS/SARS          OPTIONS/SARS AT
                                        ACQUIRED ON     AGGREGATE VALUE      AT FY-END (#)            FY-END ($)
                                         EXERCISE           REALIZED          EXERCISABLE/           EXERCISABLE/
         NAME AND POSITION                  (#)               ($)            UNEXERCISABLE         UNEXERCISABLE (1)
------------------------------------- ---------------- ------------------- ------------------- --------------------------
<S>                                       <C>                <C>                <C>                     <C>
Avi Schechter - President, Chief
Executive Officer                           --                --                140,000                 29,400
------------------------------------- ---------------- ------------------- ------------------- --------------------------
Eyal Tuchman - Vice President,
Chief Financial Officer                     --                --                 50,000                 10,500
------------------------------------- ---------------- ------------------- ------------------- --------------------------
Eli Basson - Vice President,
Research and Development and Chief
Operating Officer                         74,078             7,408               5,922                   1,244
------------------------------------- ---------------- ------------------- ------------------- --------------------------
</TABLE>

(1) Based on the closing price of our ordinary  shares on the Euronext  Brussels
New Market of $0.6318 on December 31, 2003.

C.  BOARD PRACTICES

         Our Board of Directors and senior  management  consider good  corporate
governance  to be  central  to  our  effective  and  efficient  operations.  The
following  table lists our  directors,  the positions  they hold with us and the
dates the directors were first elected or appointed:

---------------------- -------------------------------------- ------------------
NAME                   POSITION                               TERM
---------------------- -------------------------------------- ------------------
 Eli Rozen             Director, Chairman of the Board        1988
---------------------- -------------------------------------- ------------------
 Avi Landman           Director                               1988
---------------------- -------------------------------------- ------------------
 Menachem Meron        Director                               July 25, 2000
---------------------- -------------------------------------- ------------------
 Esther Koren          External Director                      May 2001
---------------------- -------------------------------------- ------------------
 Avi Elkind            External Director                      July 25, 2000
---------------------- -------------------------------------- ------------------


         Our Articles of Association provide that the minimum number of members
of the Board of Directors is two and the maximum number is eight. The Board of
Directors is presently comprised of five members, two of whom were appointed as
external directors under the provisions of the Companies Law (discussed below)
by the shareholders at our 2003 Annual General Meeting of Shareholders. All
directors hold office until their successors are elected at the next annual
general meeting of shareholders.

         Under the Companies Law and the regulations promulgated pursuant
thereto, Israeli public companies, namely companies whose shares have been
offered to the public, or that are publicly traded are required to appoint at
least two natural persons as "external directors". A person may not be appointed
as an external director if the person, or a relative, partner or employer of the
person, or any entity under the person's control, has or had, on or within the
two years preceding the date of the person's appointment to serve as an external
director, any affiliation with the company to whose board the external director
is proposed to be appointed, with the controlling shareholder of such company or
with any entity controlling or controlled by such company or by the controlling
shareholder of such company. The term "affiliation" includes an employment
relationship, a business or professional relationship maintained on a regular
basis, control and service as an office holder (which term includes a director).


                                       42
<PAGE>

         In addition, no person may serve as an external director if the
person's position or other business activities create, or may create, a conflict
of interest with the person's responsibilities as an external director or
interfere with the person's ability to serve as an external director or if the
person is a member or employee of the Israel Securities Authority or of an
Israeli stock exchange. If, at the time of election of an external director, all
other directors are of the same gender, the external director to be elected must
be of the other gender.

         Each committee of a company's board of directors that has the authority
to exercise powers of the board of directors is required to include at least one
external director and its audit committee must include all external directors.

         External directors are elected at the general meeting of shareholders
by a simple majority, provided that the majority includes at least one-third of
the shareholders who are not controlling shareholders, who are present and
voting, or that the non-controlling shareholders who vote against the election
hold one percent or less of the voting power of the company. Notwithstanding the
above, regulations under the Companies Law provide that with respect to
companies such as us, whose shares are traded on a stock exchange outside of
Israel, the board of directors may determine that a director appointed prior to
February 1, 2000 (the effective date of the Companies Law), who meets the above
qualifications, be deemed an external director even if the person served as a
director when the Companies Law became effective. In such case shareholder
approval is not required.

         At our 2003 Annual General Meeting held on June 30, 2003, Esther Koren
and Avi Elkind were each re-elected to serve as external directors for an
additional term of three years ending on June 30 2006.

         Under the Companies Law, an external director cannot be dismissed from
office unless: (i) the board of directors determines that the external director
no longer meets the statutory requirements for holding the office, or that the
external director has breached the external director's fiduciary duties and the
shareholders vote, by the same majority required for the appointment, to remove
the external director after the external director has been given the opportunity
to present his or her position; (ii) a court determines, upon a request of a
director or a shareholder, that the external director no longer meets the
statutory requirements of an external director or that the external director has
breached his or her fiduciary duties to the company; or (iii) a court
determines, upon a request of the company or a director, shareholder or creditor
of the company, that the external director is unable to fulfill his or her duty
or has been convicted of specified crimes.

BOARD COMMITTEES

     We currently have the following committees:

AUDIT COMMITTEE

         The Companies Law requires public companies to appoint an audit
committee comprised of at least three directors, including all of the external
directors, and further stipulates that the chairman of the board of directors of
a public company, any director employed by or providing other services on a
regular basis to the company and the controlling shareholder or any relative of
the controlling shareholder of such company may not be members of the audit
committee of the company. We have an audit committee (the "Audit Committee"), a
majority of whose members, including the Chairman, satisfy the criteria of
independence as required by Euronext Rules. The functions of the Audit Committee
include, among others, reviewing and evaluating the results and scope of the
audit and other services provided by our independent accountants. In addition,
tasks include reviewing our accounting principles and system of internal
auditing controls and approving actions or transactions requiring Audit
Committee approval under the Companies Law, the Articles of Association and the
Euronext Rules. The Audit Committee is comprised of Mr. Avi Elkind, Mrs. Esther
Koren and Mr. Menachem Meron.

REMUNERATION COMMITTEE

         We have a remuneration committee (the "Remuneration Committee"), a
majority of whose members, including the Chairman, satisfy the criteria of
independence required by Euronext Rules. Under the Companies Law, the
Remuneration Committee may only make recommendations to the Board of Directors
concerning the grant of options and may need to seek the approval of the Audit
Committee, the Board of Directors and the shareholders for certain compensation
decisions. The Remuneration Committee is responsible for making recommendations
on remuneration of Named Executive Officers and the implementation of the
Employee Share Option Plan. The Named Executive Officers and our senior officers
are paid fairly and commensurably with their contributions to furthering our
strategic direction and objectives. We also grant stock options to our officers,
directors and employees from time to time in accordance with our stock option
plan. The Remuneration Committee is comprised of Avi Elkind, Esther Koren and
Menachem Meron.


                                       43
<PAGE>

EMPLOYMENT   AGREEMENTS,   TERMINATION  OF  EMPLOYMENT   AND   CHANGE-IN-CONTROL
ARRANGEMENTS

         We have employment agreements with the following executive officers and
directors:

         Avi  Schechter's  consulting/services  agreement,  dated  July 1, 2002,
provides for his services as our  President  and Chief  Executive  Officer until
terminated by either party as described  below.  The  agreement  provides for an
annual salary of $179,822. In addition, we provide Mr. Schechter with the use of
an  automobile,  mobile  telephone  and  regular  telephone.  Either  party  may
terminate the employment  agreement  without cause upon 90 days' prior notice or
we may  terminate  it upon 30  days'  notice  for  cause.  In the  event  of Mr.
Schechter's  termination in connection with a change of control,  he is entitled
to receive  his salary  for 180 days.  During  2002,  we granted  Mr.  Schechter
options to purchase an aggregate of 140,000 ordinary shares at an exercise price
of $0.42 per share.

         Eyal Tuchman's employment  agreement,  dated July 1, 2002, provides for
his  employment as our Vice  President,  Corporate  Finance and Chief  Financial
Officer  until  terminated  by either party as described  below.  The  agreement
provides  for an annual  salary of $97,780,  plus a bonus as  determined  by the
board of  directors.  In  addition,  we provide Mr.  Tuchman  with the use of an
automobile  and mobile  telephone.  Either party may  terminate  the  employment
agreement  without  cause  upon 90 days'  prior  notice or we may  terminate  it
immediately for cause. During 2002, we granted Mr. Tuchman an option to purchase
50,000 ordinary shares at an exercise price of $0.42 per share.

         Eli Basson's  employment  agreement,  dated July 28, 1997, provides for
his  employment  as  our  Vice  President  and  Chief  Operating  Officer  until
terminated by either party as described  below.  The  agreement  provides for an
annual salary of $113,668.  Either party may terminate the employment  agreement
without  cause upon 90 days' prior notice or we may terminate it upon two weeks'
prior notice for cause. During 2002, we granted Mr. Basson an option to purchase
17,764 ordinary shares at an exercise price of $0.42 per share.

         Eli Rozen's (Director)  consulting/services agreement, dated October 1,
2001,  provides  for his  employment  as our  Chairman of the Board of Directors
until terminated by either party as described below. The agreement  provides for
an annual salary of $110,400.  In addition, we provide Mr. Rozen with the use of
an  automobile  and mobile  telephone  and regular  telephone.  Either party may
terminate the employment  agreement  without cause upon 60 days' prior notice or
we may terminate it upon 30 days' notice for cause.  During 2003, we granted Mr.
Rozen an option to purchase  720,981  ordinary  shares at an  exercise  price of
$0.42 per share.

         Avi Landman's (Director)  consulting/services  agreement, dated October
1, 2001, provides for his employment as our Research Manager until terminated by
either party as described below. The agreement  provides for an annual salary of
$55,200.  Either party may terminate the employment agreement without cause upon
60 days' prior notice or we may terminate it upon 30 days' notice for cause.

D.  EMPLOYEES

         As of December 31, 2003, we had 59 full-time  employees.  The following
table  describes  our  employees  and  the  employees  of  our  subsidiaries  by
department.

                                              2001      2002      2003
                                              ----      ----      ----

    Research, Development & Manufacturing      34        25        21
    Marketing and Sales                        13        15        27
    Administration                             12        11        11
                                               --        --        --
    TOTAL                                      59        51        59


         SuperCom's  Israeli  employees are not part of a collective  bargaining
agreement.  However, in Israel we are subject to certain labor statutes,  and to
certain  provisions of collective  bargaining  agreements between the Histadrut,
the  General  Federation  of Labor in  Israel,  and the  Coordinating  Bureau of
Economic  Organizations,  including the Industrialists'  Association.  These are
applicable to our Israeli employees by virtue of expansion orders of the Israeli
Ministry of Labor and Welfare. These statutes and provisions principally concern
the  length  of the  workday,  minimum  daily  wages for  professional  workers,
procedures for dismissing employees,  determination of severance pay, annual and
other vacations,  sick pay and other  conditions for employment.  We provide our
employees  with  benefits and working  conditions  that comply with the required
minimum.  In  addition,  all  employees in Israel  under  collective  bargaining
agreements  and expansion


                                       44
<PAGE>

orders are entitled to automatic  adjustment  of wages  relative to increases in
the  Consumer  Price  Index  in  Israel.  The  amount  and  frequency  of  these
adjustments are modified from time to time.

         Generally,  all male adult  citizens and permanent  residents of Israel
under the age of 54 are,  unless  exempt,  obligated to perform up to 30 days of
military reserve duty annually.  Additionally, all such residents are subject to
being called to active duty at any time under emergency  circumstances.  Some of
our officers and  employees are currently  obligated to perform  annual  reserve
duty. While we have operated effectively under these requirements since we began
operations, no assessment can be made as to the full impact of such requirements
on our workforce or business if conditions should change,  and no prediction can
be made as to the effect on us of any expansion of such obligations.

         All of our employees have entered into confidentiality  agreements.  We
have also granted certain  employees  options to purchase shares of our ordinary
shares under our option plan. We consider our relationship with our employees to
be a good one and have never experienced a strike or work stoppage.

         Our ability to succeed depends, among other things, upon our continuing
ability  to  attract  and  retain  highly   qualified   managerial,   technical,
accounting, sales and marketing personnel.

E.  SHARE OWNERSHIP

         The following  table shows the number of Ordinary Shares and options to
purchase  Ordinary  Shares  beneficially  owned by each  director  and the Named
Executive Officers as of April 30, 2004.

<TABLE>
<CAPTION>
------------------------ -------------- ------------------- -------------- ----------------- --------------------
NAME                     ORDINARY       % OF OUTSTANDING    OPTIONS        EXERCISE PRICE    EXPIRATION DATE
                         SHARES HELD    ORDINARY SHARES     OUTSTANDING
                         DIRECTLY AND   AS OF APRIL 30,
                         BENEFICIALLY   2004
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 <S>                     <C>            <C>                       <C>                <C>       <C>
 Eli Rozen               2,425,359      18.7%                     720,981            $ 0.42    27, January, 2013
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 Avi Landman             2,345,764      18.09%                     50,000            $ 0.42    27, January, 2013
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 Menachem Meron               --        --                         50,000            $ 0.42      7, October 2012
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 Esther Koren                 --        --                         50,000            $ 0.42        30, June 2013
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 Avi Elkind                   --        --                         50,000            $ 0.42        30, June 2013
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 Avi Schechter                --        --                         70,000            $ 0.42      1, January 2012
                                                                   70,000            $ 0.42       17, March 2012
                                                                  150,000            $ 0.42       25, April 2014
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 Eyal Tuchman                 --        --                         50,000            $ 0.42        20, June 2012
                                                                   75,000            $ 0.42       25, April 2014
------------------------ -------------- ------------------- -------------- ----------------- --------------------
 Eli Basson                   --        --                          5,922            $ 0.42       17, March 2012
                                                                   75,000            $ 0.52       25, April 2014
------------------------ -------------- ------------------- -------------- ----------------- --------------------
</TABLE>

All of our Ordinary Shares have identical voting rights.

STOCK OPTION PLAN

         On February 14, 1999, the Board of Directors adopted, and our
shareholders subsequently approved, the 1999 Employee Stock Option Plan, which
was amended and restated in March 2002 and November 2003 (the "Option Plan").
The Option Plan is intended to provide incentives to our employees, officers,
directors and/or consultants by providing them with the opportunity to purchase
our Ordinary Shares. Under the Option Plan, options to purchase an aggregate of
up to the number of our authorized ordinary shares (26,500,000) may, from time
to time, be awarded to any employee, officer, director and/or consultant. The
Option Plan is, subject to the provisions of the Companies Law, administered by
the Remuneration Committee, and is designed: (i) to comply with Section 102 of
the Tax Ordinance or any provision which may amend or replace it and rules
promulgated thereunder and to enable us and grantees thereunder to benefit from
Section 102 of the Tax Ordinance and the Commissioner's Rules; and (ii) to
enable us to grant options and issue shares outside the context of Section 102
of the Tax Ordinance. Options become exercisable ratably over a period of three
to five years, commencing with the date of grant. The options generally expire
no later than 10 years from the date of grant. Any options, which are forfeited
or canceled before expiration, become available for future grants.


                                       45
<PAGE>

         During 2003,  options to purchase a total of  $1,005,981,  $151,646 and
200,533 Ordinary Shares (having  respective  weighted  exercise prices of $0.42,
$0.72 and $0.42 per share) were awarded, cancelled and exercised,  respectively,
under this Plan.  As of March 31, 2004,  under this Plan,  options to purchase a
total of 2,172,878  Ordinary Shares and having a weighted average exercise price
of $0.975 per share, were outstanding.


         As a result of an amendment to Section 102 of the Tax Ordinance as part
of the  2003  Israeli  tax  reform,  and  pursuant  to an  election  made  by us
thereunder,  capital gains derived by optionees  arising from the sale of shares
pursuant  to the  exercise  of options  granted to them under  Section 102 after
January 1, 2003,  will  generally be subject to a flat capital gains tax rate of
25%.  Previously,  such  gains  were  taxed as salary  income at the  employee's
marginal  tax rate  (which  could be up to 50%).  However,  as a result  of this
election,  we will no longer be allowed to claim as an expense for tax  purposes
the amounts  credited to such  employees as a benefit  when the related  capital
gains tax is payable by them,  as we had  previously  been  entitled to do under
Section 102. For certain information as to the Israeli tax reform, see Item 10.

         A summary of our stock option activity,  and related  information is as
follows:

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                           -------------------------------------------------------------------------------
                                     2001                       2002                       2003
                           ------------------------  --------------------------  -------------------------
                                          WEIGHTED                   WEIGHTED                   WEIGHTED
                                          AVERAGE                    AVERAGE                    AVERAGE
                            NUMBER OF     EXERCISE     NUMBER OF     EXERCISE     NUMBER OF     EXERCISE
                             OPTIONS        PRICE       OPTIONS        PRICE       OPTIONS        PRICE
                           ------------  ----------  ------------   -----------  -----------  ------------
<S>                           <C>         <C>           <C>          <C>          <C>           <C>
Outstanding at
  beginning of year            768,410    $   4.30       543,495     $   5.19       880,712     $   2.88
  Granted                       65,000        0.42       443,081         0.42     1,005,981         0.42
  Exercised                       --          --            --           --        (200,533)        0.42
  Canceled and
    forfeited                 (289,915)       3.36      (105,864)        4.41      (151,646)        0.72
                            ----------                ----------                 ----------
Outstanding at end of
  year                         543,495    $   5.19       880,712     $   2.88     1,534,514         1.8
                            ==========    ========    ==========     ========    ==========     ========
Exercisable at end of
  year                         329,842    $   5.58       478,714     $   4.32     1,082,846         1.91
                            ==========    ========    ==========     ========    ==========     ========
</TABLE>

          The options  outstanding as of December 31, 2003,  have been separated
into ranges of exercise price as follows:

<TABLE>
<CAPTION>
                                    OPTIONS         WEIGHTED                         OPTIONS
                                  OUTSTANDING       AVERAGE         WEIGHTED        EXERCISABLE        WEIGHTED
                                     AS OF         REMAINING        AVERAGE            AS OF           AVERAGE
                EXERCISE         DECEMBER 31,     CONTRACTUAL       EXERCISE       DECEMBER 31,        EXERCISE
                 PRICE               2003         LIFE (YEARS)       PRICE             2003             PRICE
          --------------------  ---------------  --------------  --------------  -----------------  --------------

            <S>                   <C>                 <C>            <C>           <C>                  <C>
                 $ 0.42           1,303,781           8.95           $0.42           869,314            $  0.42
                 $ 2.00              15,000           2               2.0              9,000            $  2.0
            $ 4.00 - $ 6.00          18,670           0.5             5.09            16,180            $  5.25
            $ 8.00 - $ 9.60         197,063           0.2             8.14           188,352            $  8.52
                                 -----------                                      ------------

                                  1,534,514                           1.8          1,082,846            $  1.91
                                 ===========                     ==============   ===========          =========
</TABLE>



ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A.  MAJOR SHAREHOLDERS

         To the knowledge of our directors and senior  officers,  as at the date
of this Registration Statement,  the only person who beneficially owns, directly
or  indirectly,  or exercises  control or direction  over our voting  securities
carrying more than 5% of the voting  rights of our total issued and  outstanding
shares is as follows:


                                       46
<PAGE>

------------------------ -------------------------------------------------------
                                     NUMBER OF VOTING SECURITIES OWNED
------------------------ --------------------------- ---------------------------
          NAME                 ORDINARY SHARES         PERCENTAGE OF CLASS (1)
------------------------ --------------------------- ---------------------------
Eli Rozen                2,425,359                   18.7%
------------------------ --------------------------- ---------------------------
Avi Landman              2,345,764                   18.09%
------------------------ --------------------------- ---------------------------
Jacob Hassan             2,346,358                   18.10%
------------------------ --------------------------- ---------------------------
KBC Securities           5,849,391                   45.11%
------------------------ --------------------------- ---------------------------

     (1) We had outstanding, on March 31, 2004, 12,966,872 Ordinary Shares. This
         number does not include a total, as at that date, of 1,947,878 Ordinary
         Shares which were subject to outstanding stock options granted pursuant
         to the Option Plan.

         The  Articles  provide that each  Ordinary  Share shall confer upon its
holder  the right to vote in our  general  meetings.  All  outstanding  Ordinary
Shares (other than treasury shares) have equal rights.

         We are not aware of any  shareholders  of record of the Ordinary Shares
in the United States.

         As of March  31,  2004,  we had  three  shareholders  of  record of the
Ordinary Shares in Israel,  who, among them, held a total of 7,117,481  Ordinary
Shares, constituting approximately 54% of our outstanding Ordinary Shares.

         We are not aware of any direct or indirect  ownership  or control of us
by another corporation(s),  by any foreign government or by any other natural or
legal person(s) severally or jointly.

         We do not know of any  arrangements,  the  operation  of which may at a
subsequent date result in our change in control.

B.  RELATED PARTY TRANSACTIONS

         On September 1, 2001,  we entered into an agreement  with our 40%-owned
subsidiary  CT Card Tech  pursuant to which we have agreed to  sub-lease  office
space in our  Rannana,  Israel  facility  to CT Card Tech and to provide CT Card
Tech with certain additional  services in consideration for a monthly payment of
$1,000.  In  November  2003,  CT Card Tech  surrendered  a portion of its office
space, which reduced the monthly payment to US$ 500.

         On March 7, 2000 we  entered  into an  agreement  with IFTIC  Ltd.,  or
IFTIC, a company  registered in Israel and 50%-owned by Menachem Meron, a member
of our board of directors.  Under the terms of the agreement,  IFTIC provides us
with market  promotion and  management  services for a minimum fee of $2,500 per
month for the first 10 hours and an  additional  fee of 1.5% of sales  initiated
from new customers first  introduced by Mr. Meron.  During 2003, we paid $16,800
pursuant to this agreement

         On October 1, 2001, we entered into a consulting  agreement with Phinal
Ltd, a company  owned by our chairman of the Board of Directors  and a principal
shareholder, Eli Rozen.In consideration of these services, we have undertaken to
pay Mr.  Rozen  $10,500 per month plus car  expenses.  During  2003,  we paid an
aggregate of $126,000 pursuant to this agreement.

         On October 1, 2001, we entered into a consulting agreement with Ashland
Investments Ltd., or Ashland,  a company owned by Avi Landman,  a current member
of our board of directors,  one of our co-founders and a principal  shareholder.
In consideration of these services, we have undertaken to pay Mr. Landman $4,600
per month. In addition, we provide Mr. Landman with the use of an automobile and
mobile  telephone.  During  2003,  we  paid  Ashland  $55,200  pursuant  to this
agreement.

         During 2002, Avi Landman, one of our co-founders,  received $152,442 as
back  compensation  in connection with salary and social benefits for the period
he served as an employee in connection  with the  termination  of his employment
agreement.

         On October 1, 2001,  we entered into a consulting  agreement  with J.R.
Hagran  Ltd.,  a  company  owned  by one of our  co-founders  Jacob  Hassan.  In
consideration  for these  services,  we have undertaken to pay Mr. Hassan $4,600
per month plus car expenses.  During 2003, we paid J.R. Hagran Ltd. an aggregate
of $55,200 pursuant to this agreement.

         During 2002, one of our co-founders, Jacob Hassan, received $154,000 as
back  compensation  in connection with salary and social benefits for the period
he served as an employee in connection  with the  termination  of his employment
agreement


                                       47
<PAGE>

C.  INTERESTS OF EXPERTS AND COUNSEL

         Not Applicable.

ITEM 8.  FINANCIAL INFORMATION.

A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         Refer to Item 18, which contains the following financial statements:

      o  Consolidated Balance Sheets
      o  Consolidated Statements of Operations
      o  Statements of Changes in Shareholders' Equity
      o  Consolidated Statements of Cash Flows
      o  Notes to Consolidated Financial Statements

DIVIDEND POLICY

         We distributed a cash dividend to our shareholders on one occasion on
August 26,1997 in the amount of NIS 1 million and prior to that dividends in the
form of bonus shares were distributed on two other occasions. Our Board of
Directors does not currently anticipate paying any dividends on our Ordinary
Shares in the foreseeable future but intends to retain earnings to finance the
growth and development of our business. Any future determination to pay
dividends will be at the discretion of the Board of Directors and will depend
upon our financial condition, results of operations, capital requirements and
such other factors as the Board of Directors deems relevant.

LEGAL PROCEEDINGS

         Other than as described below, there are no materials pending legal
proceedings in which we are a party or of which our property is subject.

         In  April  2004,  we  were  informed  by the  International  Commercial
Arbitration   Court  at  the   Ukrainian   Chamber  of  Commerce   and  Industry
("Arbitration  Court") that the Department for Resources  Supply of the Ministry
of Internal  Affairs of Ukraine (the  Ministry)  had filed with the  Arbitration
Court a statement of claim to declare that  Contract No.  10/82,  dated April 9,
2002  between  SuperCom  and the  Ministry as void due to defaults in the tender
proceedings under which the contract had been awarded to SuperCom. .During 2002,
we began  the  delivery  of the  first  phase of the  project  pursuant  to this
agreement and generated  revenues of $2.1 million.  During 2003, we generated an
aggregate of $1.97  million in revenues from this project.  Our  management  has
decided to increase our doubtful  accounts in an aggregate amount of $ 2,133,000
due to the  Ukraine  government  debt to us. In  addition,  we have  reduced our
obligation to pay commissions to the distributor that has mediated in connection
with this  agreement.  If the  Arbitration  Court  declares the contract for the
Ukraine  Project  to be void,  we would  lose  approximately  $13.3  million  of
anticipated revenues for the remainder of the term through 2006.

         We are currently  handling this claim and the options  available to us.
We  strongly  believe  that the claim has no merits and we intend to  vigorously
defend the validity of the contract.  We are not  anticipating any revenues from
this project during 2004.

         On November 10 2003, Supercom Slovakia,  a subsidiary (66%) of Supercom
Ltd., has received an Award by the International Arbitral Centre of the Austrian
Federal Economic  Chamber ("IAC"),  in the case against the Ministry of Interior
of the Slovak  Republic which refers to the agreement on delivery of Technology,
Cooperation and Services  signed on 17 March 1998. Upon the Arbitral Award,  the
Ministry of Interior of the Slovak  Republic  has been  ordered to pay  Supercom
Slovakia the amount of SKK  80,000,000  (Approximately  US $2.27  million)  plus
interest  at the rate of 16.4% from March 1999.  In  addition,  the  Ministry of
Interior of the Slovak Republic has been ordered to pay the costs of arbitration
in the amount of EUR 42,716 and Supercom  Slovakia's legal fees in the amount of
EUR 63,611.  The  Ministry of Interior of the Slovak  Republic  has the right to
appeal in the  Austrian  Courts  within 3 months  from the date of this award on
only legal procedures.  We have begun the enforcement  procedure of the arbitral
award and in parallel, we have indirectly received information that the Ministry
of Interior of the Slovak Republic has filed an appeal.


                                       48
<PAGE>

         On July 14, 2003,  Mr.  Yaacov  Pedhatzur,  an Israeli  citizen filed a
complaint  against  us,  in the  Magistrate's  Court of Tel  Aviv,  Israel.  The
plaintiff  claims  that we owe him NIS  250,000  (Approximately  US  $54,550) in
commissions  allegedly due for his part in establishing business connections for
us in Eastern Asia during the years 1993-1998. We plan to contest this claim.

         On December  12, 1999,  Secu-Systems  filed a lawsuit with the District
Court  in  Tel-Aviv-Jaffa  against  the  Company  and  InkSure  Ltd.  (a  former
subsidiary) seeking a permanent  injunction and damages.  The plaintiff asserted
in its suit that the printing method applied to certain  products that have been
developed  by  InkSure  Ltd.  constitutes  inter  alia:  (a)  the  breach  of  a
confidentiality  agreement  between the  plaintiff  and the Company;  (b) unjust
enrichment  of the Company and InkSure Ltd; (c) breach of fiduciary  duties owed
to  the  plaintiff  by  the  Company  and  InkSure  Ltd.,  and  (d)  a  tort  of
misappropriation   of  trade  secrets  and  damage  to   plaintiff's   property.
Secu-Systems,  based on such  allegations,  asked the court to order the Company
and  InkSure  to:  (i)  cease  any  activity  which  involves  the   plaintiff's
confidential  information;  (ii) furnish the plaintiff  with a certified  report
detailing  all  profits  derived  by the  Company  and  InkSure  Ltd.  from such
activity;  (iii) pay the plaintiff an amount equal to all such profits, and (iv)
pay  the   plaintiff   additional   damages  in  the  amount  of  NIS   100,000.
Alternatively, the plaintiff asked the court to declare that the above-mentioned
products  are owned by the  plaintiff  and  InkSure in equal  parts and that the
plaintiff is entitled to 50% of all profits  derived  therefrom,  in which case,
the plaintiffs  asked that the Company and InkSure  allocated 50% of the profits
from the printing method at issue.

         Based  upon the  facts  known to the  Company  and  those  provided  by
InkShure  Ltd.  and  the  Company's   legal  advisors  advice  which  is  based,
inter-alia,  on said facts, the Company's management is of the opinion that, the
prospects are favorable  that the court will not grant the permanent  injunction
or award damages of a  substantial  amount in  connection  with the  litigation.
Accordingly,  the  management of the Company did not provide for such  potential
liability.


B.  SIGNIFICANT CHANGES

         As  described   above,   in  April  2004,   we  were  informed  by  the
International  Commercial Arbitration Court at the Ukrainian Chamber of Commerce
and Industry  ("Arbitration  Court") that the Department for Resources Supply of
the Ministry of Internal  Affairs of Ukraine (the  Ministry)  had filed with the
Arbitration Court a statement of claim to declare that Contract No. 10/82, dated
April 9, 2002  between  SuperCom and the Ministry as void due to defaults in the
tender proceedings under which the contract had been awarded to SuperCom. We are
currently  examining  this claim and the  options  available  to us. We strongly
believe  that the claim has no merits  and we intend to  vigorously  defend  the
validity of the contract. We are not anticipating any revenues from this project
during  2004.  If the  Arbitration  Court  declares the contract for the Ukraine
Project  to be void,  we would lose  approximately  $13,300,000  of  anticipated
revenues for the remainder of the term through 2006.

ITEM 9.  THE OFFER AND LISTING.

A.  OFFER AND LISTING DETAILS

      1.    Indicate the expected price at which the securities will be offered
            or the method of determining the price, and the amount of any
            expenses specifically charged to the subscriber or purchaser.

            Not Applicable.

      2.    If there is not an established market for the securities, the
            document shall contain information regarding the manner of
            determination of the offering price as well as of the exercise price
            of warrants and the conversion price of convertible securities,
            including who established the price or who is formally responsible
            for the determination of the price, the various factors considered
            in such determination and the parameters or elements used as a basis
            for establishing the price.

            Not Applicable.

      3.    If the company's shareholders have pre-emptive purchase rights and
            where the exercise of the right of pre-emption of shareholders is
            restricted or withdrawn, the company shall indicate the basis for
            the issue price if the issue is for cash, together with the reasons
            for such restriction or withdrawal and the beneficiaries of such
            restriction or withdrawal if intended to benefit specific persons.

            Not Applicable.


                                       49
<PAGE>

      4.    The following table sets forth information regarding the price
            history of the Ordinary Shares on the Euronext Brussels stock
            exchange since October 23, 2003 and Nasdaq Europe for the periods
            indicated.

         (a)   for the five most recent full financial years: the annual high
               and low market prices:

                                            FISCAL YEAR ENDED:
<TABLE>
<CAPTION>
---------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
                             DECEMBER 31,      DECEMBER 31,      DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                             2003              2002              2001              2000              1999
---------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S>                          <C>               <C>               <C>               <C>               <C>
High ($)                     0.75              0.565             1.6               6.95              3.0
---------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Low ($)                      0.28              0.10              0.25              1.8               3.0
---------------------------- ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

         (b)   for the most recent full financial years and any subsequent
               period: the high and low market prices for each full financial
               quarter:

                                            QUARTER ENDED:
<TABLE>
<CAPTION>
------------- ---------- ------------ ------------- ----------- ----------- ------------ ------------- -----------
              MARCH      DECEMBER     SEPTEMBER     JUNE 30,    MARCH 31,   DECEMBER     SEPTEMBER     JUNE 30,
              31, 2004   31, 2003     30, 2003      2003        2003        31, 2002     30, 2002      2002
------------- ---------- ------------ ------------- ----------- ----------- ------------ ------------- -----------
<S>           <C>        <C>          <C>           <C>         <C>         <C>          <C>           <C>
High ($)      0.730      0.75         0.665         0.525       0.675       0.55         0.535         0.565
------------- ---------- ------------ ------------- ----------- ----------- ------------ ------------- -----------
Low ($)       0.546      0.28         0.29          0.3088      0.38        0.10         0.12          0.275
------------- ---------- ------------ ------------- ----------- ----------- ------------ ------------- -----------
</TABLE>

         (c)   for the most recent six months: the high and low market prices
               for each month:

<TABLE>
<CAPTION>
------------------------ ------------- -------------- ------------- -------------- -------------- -------------
                         MAY 2004      APR 2004       MAR 2004      FEB 2004       JAN 2004       DEC 2003
------------------------ ------------- -------------- ------------- -------------- -------------- -------------
<S>                      <C>           <C>            <C>           <C>            <C>            <C>
High ($)                 0.960         0.892          0.749         0.566          0.546          0.745
------------------------ ------------- -------------- ------------- -------------- -------------- -------------
Low ($)                  0.770         0.616          0.556         0.668          0.760          0.395
------------------------ ------------- -------------- ------------- -------------- -------------- -------------
</TABLE>

         (d)   for pre-emptive issues, the market prices for the first trading
               day in the most recent six months, for the last trading day
               before the announcement of the offering and (if different) for
               the latest practicable date prior to publication of the document.

               Not Applicable.

      5.    State the type and class of securities being offered or listed and
            furnish the following information:

               Ordinary Shares, NIS 0.01 par value.

         (a)   Indicate whether the shares are registered shares or bearer
               shares and provide the number of shares to be issued and to be
               made available to the market for each kind of share. The nominal
               par or equivalent value should be given on a per share basis and,
               where applicable, a statement of the minimum offer price.
               Describe the coupons attached, if applicable.

               The Ordinary Shares  are registered shares on the books of its
         transfer  agent.  The  Ordinary  Shares have a par value of NIS .01 per
         share.

         (b)   Describe arrangements for transfer and any restrictions on the
               free transferability of the shares.

               Leleux Associated Brokers is the transfer agent for our Ordinary
               Shares. There are no transfer restrictions apart from the
               requirement that any transfers comply with applicable securities
               laws and the rules of applicable securities exchanges.


                                       50
<PAGE>

      6.    If the rights evidenced by the securities being offered or listed
            are or may be materially limited or qualified by the rights
            evidenced by any other class of securities or by the provisions of
            any contract or other documents, include information regarding such
            limitation or qualification and its effect on the rights evidenced
            by the securities to be listed or offered.

            Not Applicable.

      7.    With respect to securities other than common or ordinary shares to
            be listed or offered, outline briefly the rights evidenced thereby.

            Not Applicable.

B.  PLAN OF DISTRIBUTION

         Not Applicable.

C.  MARKETS

         Our Ordinary Shares are traded on the Euronext Brussels New Market
under the symbol "SUP."

         We intend to apply to list our Ordinary Shares for trading on the Over
the Counter Bulletin Board ("OTC-BB").

D.  SELLING SHAREHOLDERS

         Not Applicable.

E.  DILUTION

         Not Applicable.

F.  EXPENSES OF THE ISSUE

         Not Applicable.

ITEM 10.  ADDITIONAL INFORMATION.

A.  SHARE CAPITAL

         Our capital stock consists of 26,500,000 Ordinary Shares, NIS 0.01 par
value, authorized. As of April 30, 2004, there were 12,966,872 Ordinary Shares
outstanding, which are all fully paid. As of December 31, 2003, there were
12,906,872 outstanding Ordinary Shares, and as of January 1, 2003, we had
12,706,339 outstanding Ordinary Shares.

         CHANGES IN ISSUED SHARE CAPITAL

         JANUARY 1, 2001 TO DECEMBER 31, 2001

         As of January 1, 2001, there were 12,706,339 Ordinary Shares
outstanding. There were no changes in issued share capital during 2001.

         JANUARY 1, 2002 TO DECEMBER 31, 2002

         As of January 1, 2002, there were 12,706,339 Ordinary Shares
outstanding. There were no changes in issued share capital during 2002.

         We divested our investment (100% of the shares) in our subsidiary
InkSure Inc in three parts. Due to such divestments, we had a gain in the
aggregate amount of $6,423,000. The details of such divestitures are as follows:


                                       51
<PAGE>

         During March 2002, we divested part of our investment in InkSure
Technologies Inc. (a subsidiary), to Elad Ink, a privately held investment
company. Under the terms of the transaction, we sold 1,141,553 shares in the
subsidiary for $ 1,000,000.

         During May 2002, we divested another part of our investment in InkSure
to ICTS Information Systems BV, a member of the ICTS group (NASDAQ: ICTS). Under
the terms of the transaction, we sold 782,771 shares in the subsidiary for $
1,000,000.

         As a result of these divestitures, we had gains net of expenses in the
amount of $ 1,936,000.

         On October 2, 2002, we divested the remaining investment in InkSure
Technologies Inc., to ICTS Information Systems BV. Under the terms of the
transaction, we sold 3,075,676 shares in InkSure for $ 4,583,000.

         JANUARY 1, 2003 TO DECEMBER 31, 2003

         As of January 1, 2003, there were 12,706,339 Ordinary Shares
outstanding.

         During December 2003, 200,533 of our outstanding stock options were
exercised and such Ordinary Shares issued upon exercise have been listed on
Euronext Brussels New Market. Please refer to Section 6.E. for further
information with respect to option grants, exercises and cancellations during
the last three years.

         WARRANTS, OPTIONS AND OTHER CONVERTIBLE OBLIGATIONS

         STOCK OPTION PLAN

         As at December 31, 2003, 1,534,514 of these options remain outstanding.
Under the Plan, we may issue options to purchase up to our authorized number of
Ordinary Shares. As at December 31, 2003, 1,534,514 options had been granted, ,
with exercise prices ranging from $0.42 to $9.64. The exercise price of each
option granted may not be less than the market price of our Ordinary Shares at
the time of the grant and no option may have a term exceeding 10 years. Please
refer to Section 6.E. for further information with respect to our Option Plan,
including information with respect to option grants, exercises and cancellations
during the last three years.

B.  MEMORANDUM AND ARTICLES OF ASSOCIATION

         Our memorandum of association and articles of association are attached
hereto as noted in Item 19.

         We are a public company organized in the State of Israel under the
Israeli Companies Law. We are registered with the Registrar of Companies of the
State of Israel and we have been assigned company number 52-00-4407-4.

         Set forth below is a summary of certain provisions of our Memorandum of
Association (the "Memorandum"), the Articles of Association (the "Articles") and
the Companies Law. This description does not purport to be complete and is
qualified in its entirety by reference to the full text of the Memorandum and
Articles and by Israeli law. The Memorandum, in a form which reflects,
integrated into the text, all amendments thereto since our incorporation, and
the Articles, in a form which reflects, integrated into the text, all amendments
thereto since being adopted on April 13, 1999, are exhibits to this Form 20-F.

OBJECTS OF THE COMPANY

         Pursuant to Section 2 of the Memorandum, the principal object for which
we were established is to engage in the development, manufacture, implementation
and marketing of computerized systems in general and computerized systems for
producing tags, computerized photograph databases for the purpose of
identification and for issuing various certificates in particular; consultation
in the above fields; development, manufacture, implementation and marketing of
any product


                                       52
<PAGE>

based on the knowledge and expertise of the parties; and the purchase, sale,
import, export and implementation of any action required to realize the above
objectives.


DIRECTORS

         Our Articles provide that the number of directors serving on the board
shall be not less than two but shall not exceed eight. Our directors, other than
external directors, are elected at the annual shareholders meeting to serve
until the next annual meeting or until their earlier death, resignation,
bankruptcy, incapacity or removal by resolution of the general shareholders
meeting. Directors may be re-elected at each annual shareholders meeting. The
board may appoint additional directors (whether to fill a vacancy or create new
directorship) to serve until the next annual shareholders meeting, provided,
however, that the board shall be entitled to act in every matter so long as the
number of its members is not less than the quorum required at the time for
meetings of the board. If the number of members of the board decreases below
said quorum, the board will not be entitled to act except in order to fill
vacant positions on the board or to call a general meeting of the shareholders.
Our officers serve at the discretion of the board.

         The board of directors may meet and adjourn its meetings according to
our needs. A meeting of the board may be called at the request of each director.
The quorum required for a meeting of the board consists of at least two
directors constituting a majority of directors. The adoption of a resolution by
the board requires approval by a simple majority of the directors present at a
meeting in which such resolution is proposed. In lieu of a board meeting a
resolution may be adopted in writing by all directors, and a meeting may also be
held through any communications means, provided however that all participants
may hear each other simultaneously.

         Subject to the Companies law, the board may appoint a committee of the
board and delegate to such committee all or any of the powers of the board, as
it deems appropriate. The board may, at any time, amend, restate or cancel the
delegation of any of its powers to any of its committees. Under the Companies
Law the board of directors must appoint an audit committee, comprised of at
least three directors and including all of the external directors. The function
of the audit committee is to review irregularities in the management of our
business and recommend remedial measures. The committee is also required, under
the Companies Law, to approve certain related party transactions. The board has
appointed an internal audit committee which has three members and a remuneration
committee which has three members.

FIDUCIARY DUTIES OF OFFICERS

         The Companies Law codifies the fiduciary duties that "office holders,"
including directors and executive officers, owe to a company. An office holder's
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of
loyalty includes avoiding any conflict of interest between the office holder's
position in the company and his personal affairs, avoiding any competition with
the company, avoiding exploiting any business opportunity of the company in
order to receive personal advantage for himself or others, and revealing to the
company any information or documents relating to the company's affairs which the
office holder has received due to his position as an office holder.

APPROVAL OF CERTAIN TRANSACTIONS

         Under the Companies Law, all arrangements as to compensation of office
holders who are not directors, or controlling parties, require approval of the
board of directors. Arrangements regarding the compensation of directors also
require internal audit committee and shareholder approval.

         The Companies Law requires that an office holder of the company
promptly disclose any personal interest that he or she may have and all related
material information known to him or her, in connection with any existing or
proposed transaction by the company. In addition, if the transaction is an
extraordinary transaction as defined under Israeli law, the office holder must
also disclose any personal interest held by the office holder's spouse,
siblings, parents, grandparents, descendants, spouse's descendants and the
spouses of any of the foregoing. In addition, the office holder must also
disclose any interest held by any corporation in which the office holder is a 5%
or greater shareholder, director or general manager or in which he or she has
the right to appoint at least one director or the general manager. An
extraordinary transaction is defined as a transaction other than in the ordinary
course of business, otherwise than on market terms, or that is likely to have a
material impact on the company's profitability, assets or liabilities.

         In the case of a transaction which is not an extraordinary transaction,
after the office holder complies with the above disclosure requirement, only
board approval is required unless the articles of association of the company
provide otherwise. The transaction must not be adverse to the company's
interest. Furthermore, if the transaction is an extraordinary transaction, then,
in addition to any approval stipulated by the articles of association, it also
must be approved by the company's audit committee and then by the board of
directors, and, under certain circumstances, by a meeting of the


                                       53
<PAGE>

shareholders of the company. An office holder who has a personal interest in a
matter that is considered at a meeting of the board of directors or the audit
committee may not be present at the deliberations or vote on this matter. If a
majority of the directors has a personal interest in a transaction with us, such
directors may be present at the deliberations and vote in this matter, and
shareholder approval of the transaction is required.

         The Companies Law applies the same disclosure requirements to a
controlling shareholder of a public company, which includes a shareholder that
holds 25% or more of the voting rights if no other shareholder owns more than
50% of the voting rights in the company. Extraordinary transactions with a
controlling shareholder or in which a controlling shareholder has a personal
interest, and the terms of compensation of a controlling shareholder who is an
office holder, require the approval of the audit committee, the board of
directors and the shareholders of the company by simple majority, provided that
either such majority vote must include at least one-third of the shareholders
who have no personal interest in the transaction and are present at the meeting
(without taking into account the votes of the abstaining shareholders), or that
the total shareholdings of those who have no personal interest in the
transaction who vote against the transaction represent no more than one percent
of the voting rights in the company.

         In addition, a private placement of securities that will increase the
relative holdings of a shareholder that holds five percent or more of the
company's outstanding share capital (assuming the exercise or conversion of all
securities held by such person that are exercisable for or convertible into
shares) or voting rights or that will cause any person to become, as a result of
the issuance, a holder of more than five percent of the company's outstanding
share capital or voting rights, requires approval by the board of directors and
the shareholders of the company. However, if the receiving party is not a
director in the company, its CEO, or a controlling shareholder, and will not
become a controlling shareholder as a result of the private placement,
shareholder approval is not required if the allotted securities amount to twenty
percent or less, of the company's outstanding voting rights before the
allotment. Since our shares are traded and were offered to the public only
outside of Israel, and as long as our shares are not offered to the public or
registered for trade in Israel, we are exempted from these limitations
concerning private placements.

         Under the Companies Law and as long as our Articles are not amended to
determine otherwise,, certain resolutions, such as resolutions regarding
mergers, and windings up, require approval of the holders of 75% of the shares
represented at the meeting and voting thereon.

DUTIES OF SHAREHOLDERS

         Under the Companies Law, a shareholder has a duty to act in good faith
and in a customary way towards the company and other shareholders and to refrain
from abusing his or her power in the company including, among other things, when
voting in a general meeting of shareholders on the following matters:

         o   any amendment to the articles of association;

         o   an increase of the company's authorized share capital;

         o   a merger; or

         o   approval of interested party transactions which require shareholder
             approval.

         In addition, any controlling shareholder, any shareholder who knows
that it possesses power to determine the outcome of a shareholder vote and any
shareholder who, pursuant to the provisions of a company's articles of
association, has the power to appoint or prevent the appointment of an office
holder in the company, is under a duty to act with fairness towards the company.
The Companies Law does not describe the substance of this duty but provides that
a breach of his or her duty is tantamount to a breach of fiduciary duty of an
officer of the company.

EXEMPTION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

EXEMPTION OF OFFICE HOLDERS

         Under the Companies Law, an Israeli company may not exempt an office
holder from liability for breach of his duty of loyalty, but may exempt in
advance an office holder from liability to the company, in whole or in part, for
a breach of his duty of care, provided the articles of association of the
company allow it to do so. Our Articles allow us to exempt our office holders
entirely and in advance from liability to any damage suffered as a result of
this breach of duty of care towards us.


                                       54
<PAGE>

OFFICE HOLDER INSURANCE

         Our Articles provide that, subject to the provisions of the Companies
Law, we may enter into a contract for the insurance of the liability of any of
our office holders for any act done by him or her by virtue of being an office
holder, in respect of any of the following:

         o   a breach of duty of care towards us or any other person,

         o   a breach of fiduciary obligations towards us, provided that the
         office holder acted in good faith and had reasonable grounds to assume
         that his or her act would not be to our detriment, or

         o   a financial liability imposed on him or her in favor of another
         person.


INDEMNIFICATION OF OFFICE HOLDERS

         Our Articles provide that we may indemnify an office holder, POST
FACTUM, for the following cases of liability and expenses incurred by him or her
as a result of an act done by him or her by virtue of being an office holder :

         o   a monetary liability imposed on him or her in favor of another
         person pursuant to a judgment, including a settlement judgment or an
         arbitrator award approved by a, and

         o   reasonable litigation expenses, including attorneys' fees, incurred
         by the office holder or imposed on him or her by a court, in a
         proceeding brought against him by or on our behalf or by another
         person, or in a criminal proceeding from which he or she were
         acquitted, or in a criminal proceeding in which he or she were
         convicted for a criminal offense that does not require evidence of
         criminal MENS rea.

         We have obtained directors and officers liability insurance for the
benefit of our office holders.

LIMITATIONS ON EXEMPTION, INSURANCE AND INDEMNIFICATION

         The Israeli Companies Law provides that a company may not exempt or
indemnify an office holder, or enter into an insurance contract, which would
provide coverage for any monetary liability incurred as a result of any of the
following:

         o   a breach by the office holder of his or her duty of loyalty towards
         the company unless, with respect to insurance coverage, the office
         holder acted in good faith and had a reasonable basis to believe that
         the act would not prejudice the company;

         o   a breach by the office holder of his or her duty of care if the
         breach was done intentionally or recklessly;

         o   any act or omission done with the intent to derive an illegal
         personal benefit; or

         o   any fine levied against the office holder.

REQUIRED APPROVALS

         In addition, under the Companies Law, any exemption of, indemnification
of, or procurement of insurance coverage for, our office holders must be
approved by our audit committee and our board of directors and, if the
beneficiary is a director, an additional approval by our shareholders is
required.

RIGHTS OF ORDINARY SHARES

         Our Ordinary Shares confer upon our shareholders the right to receive
notices of, and to attend, shareholder meetings, the right to one vote per
Ordinary Share at all shareholders' meetings for all purposes, and to share
equally, on a per share basis, in such dividends as may be declared by our Board
of Directors; and upon liquidation or dissolution, the right to participate in
the distribution of any surplus assets of the Company legally available for
distribution to shareholders after payment of all debts and other liabilities of
the Company. All Ordinary Shares rank PARI PASSU in all respects with each
other. Our Board of Directors may, from time to time, make such calls as it may
think fit upon a shareholder in respect of


                                       55
<PAGE>

any sum unpaid in respect of shares held by such shareholder which is not
payable at a fixed time, and each shareholder shall pay the amount of every call
so made upon him (and of each installment thereof if the same is payable in
installments).

MEETINGS OF SHAREHOLDERS

         An annual general meeting of our shareholders shall be held once in
every calendar year not later than 15 months after the last annual general
meeting at such time and at such place either within or without the State of
Israel as may be determined by our Board of Directors.

         Our Board of Directors may, whenever it deems fit, convene a special
general meeting at such time and place, within or without the State of Israel,
as may be determined by the Board of Directors. Special general meetings may
also be convened upon requisition in accordance with the Companies Law.

MERGERS

         A merger of the Company shall require the approval of the holders of a
majority of seventy five percent (75%) of the voting power represented at the
annual or special general meeting in person or by proxy or by written ballot, as
shall be permitted, and voting thereon in accordance with the provisions of the
Companies Law.

C.  MATERIAL CONTRACTS

         We are not a party to any material contracts outside of the ordinary
course of business.

D.  EXCHANGE CONTROLS

         Pursuant to a general permit issued in 1998 by the Israeli Controller
of Foreign Exchange under the Currency Control Law, 1978 (the "Currency Control
Law"), there are virtually no restrictions on foreign exchange in the State of
Israel, except for certain reporting obligations.

E.  TAXATION

         To the extent that the following discussion is based on new or existing
tax or other legislation that has not been subject to judicial or administrative
interpretation, there can be no assurance that the views expressed herein will
be accepted by the tax or other authorities in question. This discussion is not
intended, nor should it be construed, as legal or professional tax advice and it
is not exhaustive of all possible tax considerations.


(A)      ISRAELI TAXATION

         (I)   TAXATION OF CAPITAL GAINS APPLICABLE  TO ISRAELI AND  NON-ISRAELI
               SHAREHOLDERS

         Israeli law  generally  imposes a capital  gains tax on the sale of any
capital assets by residents of Israel, as defined for Israeli tax purposes,  and
on the sale of assets located in Israel,  including shares in Israeli companies,
by both residents and  non-residents of Israel,  unless a specific  exemption is
available or unless a tax treaty between Israel and the shareholder's country of
residence  provides  otherwise.  The law  distinguishes  between  real  gain and
inflationary surplus. The inflationary surplus is a portion of the total capital
gain which is equivalent to the increase of the relevant  asset's purchase price
which is attributable to the increase in the Israeli consumer price index or, in
certain  circumstances,  a foreign currency  exchange rate,  between the date of
purchase and the date of sale.  The real gain is the excess of the total capital
gain over the inflationary surplus.

         Pursuant to the Tax Reform, generally,  capital gains tax is imposed on
Israeli  residents at a rate of 15% on real gains derived on or after January 1,
2003, from the sale of shares in Israeli companies  publicly traded on Nasdaq or
on a  recognized  stock  exchange  (Euronext  Brussels  New Market) or regulated
market in a country that has a treaty for the prevention of double taxation with
Israel.  This tax  rate is  contingent  upon  the  shareholder  not  claiming  a
deduction for financing  expenses in connection  with such shares,  and does not
apply to: (i) the sale of shares to a relative  (as defined in the Tax  Reform);
(ii) the sale of shares by  dealers in  securities;  (iii) the sale of shares by
shareholders that report in accordance with the Inflationary Adjustments Law; or
(iv) the sale of shares by  shareholders  who acquired  their shares prior to an
initial public offering (that are subject to a different tax  arrangement).  The
tax basis of shares  acquired  prior to  January 1, 2003 will be  determined  in
accordance  with the  average  closing  share  price in the three  trading  days
preceding January 1,


                                       56
<PAGE>

2003.  However,  a request may be made to the tax  authorities  to consider  the
actual  adjusted  cost of the shares as the tax basis if it is higher  than such
average price.

         In December 2003,  regulations  promulgated  pursuant to the Tax Reform
were amended so that, in certain  circumstances,  capital gains derived from the
sale and subsequent  (same day)  repurchase of shares traded on the TASE or from
shares of Israeli  companies  publicly traded on a recognized  stock exchange or
regulated  market in a country  that has a treaty for the  prevention  of double
taxation with Israel,  may be taxed at a rate equal to the  withholding tax rate
applicable  to  revenues   derived  from  such  sale.  In  accordance   with  an
announcement published by the Israeli Income Tax Commission, the withholding tax
rate applicable to the sale of such shares until the end of 2003 tax year, which
was  equal at such  time to 1% of the  revenues  generated  in their  sale,  was
determined  as  the  final  tax  rate  applicable  to  such  sale.  The  amended
regulations  also determined  that the day of such sale and repurchase  shall be
considered  the new date of  purchase  of such  shares.  The  foregoing  was not
applicable  to: (i)  dealers in  securities;  (ii)  shareholders  that report in
accordance  with  the  Inflationary  Adjustments  Law;  (iii)  shareholders  who
acquired their shares prior to an initial public  offering;  (iv) in some cases,
shareholders   that   received   their  shares   within  the   framework  of  an
employer-employee  relationship;  or (v)  shareholders  claiming a deduction for
financing  expenses in  connection  with such shares.  The  regulations  further
provided  that with  respect  to shares of Israeli  companies  traded on a stock
exchange  outside of Israel,  the market  price  determined  at the close of the
trading day preceding the day of the sale and  repurchase of such shares,  shall
constitute the new tax basis for any future sale of such shares.

         Non-Israeli  residents are exempt from Israeli capital gains tax on any
gains derived from the sale of shares  publicly  traded on a the TASE,  provided
such gains did not derive from a permanent establishment of such shareholders in
Israel,  and are exempt from Israeli capital gains tax on any gains derived from
the sale of shares of Israeli  companies  publicly traded on a recognized  stock
exchange  (Euronext  Brussels New Market) or regulated market outside of Israel,
provided  however  that such  capital  gains are not  derived  from a  permanent
establishment  in Israel and  provided  that such  shareholders  did not acquire
their  shares  prior  to  an  initial  public  offering.  However,   non-Israeli
corporations  will not be entitled to such exemption if an Israeli  resident (i)
has a controlling  interest of 25% or more in such non-Israeli  corporation,  or
(ii) is the beneficiary or is entitled to 25% or more of the revenues or profits
of such non-Israeli corporation, whether directly or indirectly.

         In some instances where SuperCom  shareholders may be liable to Israeli
tax on the sale of their ordinary shares,  the payment of the  consideration may
be subject to the  withholding  of Israeli  tax at the  source.  Pursuant to the
Convention  Between  the  government  of the United  States of  America  and the
government  of  Israel  with  Respect  to  Taxes  on  Income,  as  amended  (the
"U.S.-Israel  Tax Treaty") the sale,  exchange or disposition of ordinary shares
by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies
as a resident of the United  States  within the meaning of the  U.S.-Israel  Tax
Treaty and (iii) is  entitled to claim the  benefits  afforded to such person by
the  U.S.-Israel  Tax  Treaty,  generally,  will not be subject  to the  Israeli
capital  gains  tax  unless  such  Treaty  U.S.  Resident  holds,   directly  or
indirectly,  shares representing 10% or more of our voting power during any part
of the 12-month period preceding such sale, exchange or disposition,  subject to
certain conditions, or the capital gains from such sale, exchange or disposition
can be allocated to a permanent establishment in Israel. In this case, the sale,
exchange or disposition  of ordinary  shares would be subject to Israeli tax, to
the extent applicable;  however,  under the U.S.-Israel Tax Treaty,  such Treaty
U.S.  Resident  would be permitted to claim a credit for such taxes  against the
U.S.  federal  income  tax  imposed  with  respect  to such  sale,  exchange  or
disposition,  subject to the  limitations in U.S. laws applicable to foreign tax
credits.  The  U.S.-Israel  Tax Treaty  does not  relate to U.S.  state or local
taxes.

         (II)  INCOME TAXES ON DIVIDEND DISTRIBUTION TO NON-ISRAELI SHAREHOLDERS

         Individuals who are non-residents of Israel are subject to a graduated
income tax on income derived from sources in Israel. These sources of income
include passive income, including dividends, royalties and interest, as well as
non-passive income from services provided in Israel. Upon a distribution of a
dividend, other than bonus shares (stock dividends), income tax is generally
withheld at the rate of 25% (or 15% in the case of dividends distributed from
taxable income derived from an Approved Enterprise), unless a different rate is
provided in a treaty between Israel and the shareholder's country of residence.
The withheld tax is the final tax in Israel on dividends paid to non-residents
who do not conduct a business in Israel. See "U.S.-Israel Tax Treaty".

         A non-resident of Israel who has dividend income derived from or
accrued in Israel, from which tax was withheld at source, is generally exempt
from the duty to file tax returns in Israel in respect of such income, provided
such income was not derived from a business conducted in Israel by the taxpayer
and the non-resident has no other sources of income in Israel.


                                       57
<PAGE>

         Residents of the United States generally will have withholding tax in
Israel deducted at source. As discussed below, they may be entitled to a credit
or deduction for United States federal income tax purposes in the amount of the
taxes withheld, subject to detailed rules contained in United States tax
legislation.

         (III) U.S.-ISRAEL TAX TREATY

         The Treaty is generally effective as of January 1, 1995. Under the
Treaty, the maximum Israeli tax and withholding tax on dividends paid to a
holder of Ordinary Shares who is a Treaty U.S. Resident (as defined below) is
generally 25%. However, pursuant to the Approved Enterprise Law, dividends
distributed by an Israeli company and derived from the income of an Approved
Enterprise during the applicable benefits period will generally be subject to a
reduced 15% dividend withholding tax rate. The Treaty further provides that a
12.5% Israeli dividend withholding tax will apply to dividends paid to a United
States corporation owning 10% or more of an Israeli company's voting shares
during, in general, the current and preceding tax year of the Israeli company.
The lower 12.5% rate applies only on dividends distributed from income not
derived from an Approved Enterprise in the applicable period and does not apply
if the company has certain amounts of passive income.

         Pursuant to the Treaty, the sale, exchange or disposition of Ordinary
Shares by a person who qualifies as a resident of the United States within the
meaning of the Treaty and who is entitled to claim the benefits afforded to such
residents under the Treaty (a "Treaty U.S. Resident") generally will not be
subject to the Israeli capital gains tax unless such Treaty U.S. Resident holds,
directly or indirectly, shares representing 10% or more of the voting power of
the Company during any part of the 12-month period preceding such sale, exchange
or disposition subject to certain conditions. A sale, exchange or disposition of
Ordinary Shares by a Treaty U.S. Resident who holds, directly or indirectly,
shares representing 10% or more of the voting power of the Company at any time
during such preceding 12-month period would not be exempt under the Treaty from
such Israeli tax; however, under the Treaty, such Treaty U.S. Resident would be
permitted to claim a credit for such taxes against United States federal income
tax imposed on any gain from such sale, exchange or disposition, under the
circumstances and subject to the limitations specified in the Treaty.

         Israel presently has no estate or gift tax.

         (IV)  GENERAL CORPORATE TAX STRUCTURE

         The general corporate tax rate in Israel is currently 36%. The
effective tax rate payable by a company that derives income from an "Approved
Enterprise," however, may be considerably less. See "Law for the Encouragement
of Capital Investments, 1959" below.

         LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

         Under the Law for the Encouragement of Industry (Taxes), 1969 (the
"Industry Encouragement Law"), a company qualifies as an "Industrial Company" if
it is a resident in Israel and at least 90% of its income in a given tax year
(exclusive of certain income) is derived from Industrial Enterprises which was
defined as an enterprise whose major activity in a particular tax year is
industrial manufacturing. The Company currently qualifies as such.

         A qualifying Industrial Company is entitled to deduct the purchase
price of know-how and patents and is also entitled to deduct expenses of issuing
publicly traded shares.

         Additionally, under certain income tax regulations, Industrial
Companies qualify for special accelerated depreciation rates. An Industrial
Company owning an Approved Enterprise (see "Law for the Encouragement of Capital
Investments, 1959" below) may choose between the above depreciation rates and
the depreciation rules available to Approved Enterprises.

         Qualification as an Industrial Company is not conditional upon the
receipt of prior approval from any Israeli Government authority. No assurance
can be given that the Company will continue to qualify as an Industrial Company
or will in the future be able to avail itself of any benefits available to
companies so qualifying.


                                       58
<PAGE>

         LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENT, 1959

         The Law for the Encouragement of Capital Investment, 1959 (the
"Investment Law") provides that capital investment in a production facility (or
other eligible assets) may, upon application to the Israeli Investment Center,
be designated as an "Approved Enterprise". Each certificate of approval for an
Approved Enterprise relates to a specific investment program, delineated both by
the financial scope of the investment and by the physical characteristics of the
facility or the asset. A company having an Approved Enterprise is entitled to
certain benefits, including Israeli Government cash grants and tax benefits.
Each application for an investment program is evaluated by the Investment Center
and there can be no assurance that any such application will be approved. The
Company currently has three Alternative Benefits Programs under the Investment
Law, which entitle the Company to certain tax benefits. The benefits available
to a company having an Approved Enterprise are conditional upon the fulfillment
of certain conditions stipulated in the Investment Law and its regulations and
the criteria set forth in the specific certificate of approval. The Company
believes its Approved Enterprises operate in substantial compliance with all
such conditions and criteria.

   (B)    UNITED STATES FEDERAL INCOME TAX

         The following general discussion sets forth the material United States
federal income tax consequences that are applicable to the following persons who
invest in Ordinary Shares and hold such Ordinary Shares as capital assets ("U.S.
Shareholders"): (a) individuals who are citizens or residents (as specifically
defined for U.S. federal income tax purposes) of the United States; (b)
corporations (or entities treated as corporations for U.S. tax purposes) created
or organized in the United States or under the laws of the United States or of
any state thereof; and (c) estates or trusts the income of which is subject to
United States federal income taxation regardless of its source. This discussion
does not deal with: (i) all aspects of U.S. federal income taxation that may be
relevant to particular U.S. Shareholders based on their particular circumstances
(including potential application of the alternative minimum tax); (ii) certain
U.S. Shareholders subject to special treatment under the U.S. federal income tax
laws such as broker-dealers, insurance companies, tax-exempt organizations,
financial institutions, taxpayers whose functional currency is not the Dollar,
or foreign individuals or entities; (iii) U.S. Shareholders owning directly or
by attribution 10% or more of the Ordinary Shares; or (iv) any aspect of state,
local or non-United States tax laws. Additionally, the following discussion does
not consider the tax treatment of persons who hold Ordinary Shares through a
partnership or other pass-through entity.

         The summary of United States income tax laws set out below is based on
the Internal Revenue Code of 1986, as amended, Treasury regulations, judicial
decisions and published positions of the Internal Revenue Service (the "IRS") as
of the date hereof and is subject to any changes occurring in the United States
law after that date, which changes could be retroactive.

         (I)   DIVIDENDS PAID ON SHARES

         Distributions on Ordinary Shares paid (before reduction for Israeli
withholding taxes) out of the Company's current or accumulated earnings and
profits, as determined for U.S. federal income tax purposes, will be dividends
and will be includible in a U.S. Shareholder's ordinary income when received.
Under recently enacted legislation, dividends received by an individual taxpayer
during taxable years before 2009 will be taxed at a maximum rate of 15%,
provided the taxpayer has held the stock for more than 60 days during the
120-day period beginning 60 days before the ex-dividend date and certain other
conditions are satisfied. Dividends received by an individual taxpayer for
taxable years after 2008 will be subject to tax at ordinary income rates. The
dividend will not be eligible for the dividends-received deduction generally
allowed to U.S. corporations.

         The amount of any dividend paid in Israeli currency will equal the
Dollar value of the Israeli currency received calculated by reference to the
exchange rate in effect on the date the dividend is received by the U.S.
Shareholder, regardless of whether the Israeli currency is converted into
Dollars. If the Israeli currency received as a dividend is not converted into
Dollars on the date of receipt, the U.S. Shareholder will have a basis in the
Israeli currency equal to the Dollar value on the date of receipt. Any gain or
loss realized on a subsequent conversion or other disposition of the Israeli
currency will be treated as ordinary income or loss, and generally will be
income or loss from sources within the United States for U.S. foreign tax credit
purposes.

         To the extent that the amount of any distribution exceeds the Company's
current and accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of capital to the extent
of the U.S. Shareholder's basis, and any excess will be treated as capital gain.
Such distributions would not give rise to income from sources outside the United
States.


                                       59
<PAGE>

         (II)  CREDIT FOR ISRAELI TAXES WITHHELD

         U.S. Shareholders may be entitled to deduct, or claim a U.S. foreign
tax credit for, Israeli taxes that are withheld on dividends received, subject
to applicable limitations in the Code. Dividends will be income from sources
outside the United States and generally will be "passive income" or "financial
services income" for purposes of computing the U.S. foreign tax credit allowable
to a U.S. Shareholder. The rules governing the U.S. foreign tax credit are
complex, and additional limitations on the credit apply to individuals receiving
dividends eligible for the 15% maximum tax rate on dividends described above.

         (III) DISPOSITION OF ORDINARY SHARES

         A U.S. Shareholder will generally recognize capital gain or loss upon
the sale or exchange of Ordinary Shares in an amount equal to the difference
between the amount realized and the U.S. Shareholder's tax basis in the Ordinary
Shares. Such gain or loss will be long-term capital gain or loss if the U.S.
Shareholder's holding period exceeds one year, and otherwise will be short-term
capital gain or loss. Certain limitations apply to the deductibility of capital
losses by both corporate and non-corporate taxpayers. Gain or loss from the
sale, exchange or other disposition of Ordinary Shares will generally be treated
as from U.S. sources for U.S. foreign tax credit purposes. However, pursuant to
the Treaty, such gain or loss may be foreign source in certain circumstances.
See "U.S.-Israel Tax Treaty". U.S. Shareholders should consult their own tax
advisors regarding the treatment of any foreign currency gain or loss on any
Israeli currency received in respect of the sale, exchange or other disposition
of Ordinary Shares.

         (IV)  PASSIVE FOREIGN INVESTMENT COMPANY

         A "passive foreign investment company" ("PFIC") is defined as any
foreign corporation at least 75% of whose consolidated gross income for the
taxable year is passive income, or at least 50% of the value of whose
consolidated assets is attributable to assets that produce or are held for the
production of passive income. For this purpose, passive income generally
includes dividends, interest, royalties, rents, annuities and the excess of
gains over losses from the disposition of assets which produce passive income.
The Company believes that it is not and has not been a PFIC for United States
federal income tax purposes, and the Company expects that it will not become a
PFIC. If the Company were to become a PFIC, then all U.S. Shareholders would be
required either: (i) to include in their taxable income certain undistributed
amounts of the Company's income if a qualified electing fund election has been
made; or (ii) to pay an interest charge together with tax calculated at maximum
ordinary income rates on certain "excess distributions" (defined to include gain
on the sale of Ordinary Shares). In addition, if the Company is a PFIC,
individual U.S. Shareholders will not be eligible for the 15% maximum tax rate
on dividends described above.

         (V)   BACKUP WITHHOLDING AND INFORMATION REPORTING

         A non-corporate U.S. Shareholder may, under certain circumstances, be
subject to information reporting requirements and "backup withholding" at a rate
currently equal to 28% on cash payments in the United States of dividends on,
and the proceeds of disposition of, Ordinary Shares. Backup withholding will
apply only if a U.S. Shareholder: (a) fails to furnish its social security or
other taxpayer identification number ("TIN") within a reasonable time after the
request therefor; (b) furnishes an incorrect TIN; (c) is notified by the IRS
that it has failed properly to report payments of interest and dividends; or (d)
under certain circumstances, fails to certify, under penalty of perjury, that it
has furnished a correct TIN and has not been notified by the IRS that it is
subject to backup withholding for failure to report interest and dividend
payments. U.S. Shareholders should consult their tax advisors regarding their
qualification for exemption, if applicable. The amount of backup withholding
from a payment to a U.S. Shareholder generally will be allowed as a credit
against such U.S. Shareholder's federal income tax liability and may entitle
such U.S. Shareholder to a refund, provided that the required information is
furnished to the IRS.

F.  DIVIDENDS AND PAYING AGENTS

DIVIDENDS

         The Company distributed a cash dividend to its shareholders on one
occasion on August 26, 1997 in the amount of NIS 1 million and prior to that
dividends in the form of bonus shares were distributed on two other occasions.
The Company does not expect to declare or pay cash dividends in the foreseeable
future and currently intends to retain future earnings, if any, to finance the
growth and development of its business.


                                       60
<PAGE>

PAYING AGENT

         In Belgium, Leleux Associated Brokers S.A., acts as a paying agent (the
"Paying Agent ") for the Shares.

         The Company will pay the costs of distributing dividends, if any,
through the Paying Agent. Any changes in or additions to paying agents will be
announced in the Belgian financial press and through the Euronext Regulatory
Company Reporting System.

G.  STATEMENT BY EXPERTS

         The consolidated financial statements of SuperCom Ltd. as of December
31, 2003 and 2002, and for each of the fiscal years ended December 31, 2003,
2002 and 2001, included in this registration statement have been audited by
Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global, independent
auditors, as stated in their reports appearing herein, which, as to the years
2002 and 2003 are based in part on the reports of BDO McCabe Lo Company
independent auditors, and have been so included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.

         The financial statements of SuperCom Asia Pacific have been audited by
BDO McCabe Lo & Company, independent certified public accountants, to the extent
and for the periods set forth in their report appearing in the Registration
Statement, and is included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting

H.  DOCUMENTS ON DISPLAY

         Upon the effectiveness of this filing, we will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and we will thereafter file reports and other information with the SEC. You may
read and copy any of our reports and other information at, and obtain copies
upon payment of prescribed fees from, the Public Reference Room maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In
addition, the SEC maintains a Web site that contains reports and other
information regarding registrants that file electronically with the SEC at
HTTP://WWW.SEC.GOV. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.

         We are required to file reports and other information with Euronext
Brussels New Market. You are invited to read and copy any reports, statements or
other information, other than confidential filings, that we file with Euronext
Brussels New Market. These filings are also electronically available from
Euronext Brussels at http://www.euronext.com.

         As a foreign private issuer, we are exempt from the rules under the
Securities Exchange Act of 1934, as amended, prescribing the furnishing and
content of proxy statements to shareholders.

         We will provide without charge to each person, including any beneficial
owner, on the written or oral request of such person, a copy of any or all
documents referred to above which have been or may be incorporated by reference
in this report (not including exhibits to such incorporated information that are
not specifically incorporated by reference into such information). Requests for
such copies should be directed to us at the following address:
_____________________________.

I.  SUBSIDIARY INFORMATION

         Not Applicable.


                                       61
<PAGE>

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

         We hold no material financial instruments for trading purposes.
Accordingly, we do not believe that there is any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this item.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

         Not Applicable.

                                    PART III.

ITEM 17.  FINANCIAL STATEMENTS.

         Not Applicable.

ITEM 18.  FINANCIAL STATEMENTS.

         The following section contains the consolidated financial statement of
SuperCom Ltd. and its subsidiaries as of December 31, 2003.


                                       62
<PAGE>

                       SUPERCOM LTD. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2003

                                 IN U.S. DOLLARS



                                      INDEX

                                                                       PAGE
                                                                  --------------

 REPORT OF INDEPENDENT AUDITORS                                         64

 CONSOLIDATED BALANCE SHEETS                                          65-66

 CONSOLIDATED STATEMENTS OF OPERATIONS                                  67

 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                          68

 CONSOLIDATED STATEMENTS OF CASH FLOWS                                69-70

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           71-98


                    - - - - - - - - - - - - - - - - - - - - -


                                       63
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

[GRAPHIC OMITTED]
                            KOST FORER GABBAY & KASIERER    Phone: 972-3-6232525
                            Tel-Aviv 67067, Israel          Fax:   972-3-5622555



                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                                  SUPERCOM LTD.

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Supercom Ltd. ("the  Company") and its  subsidiaries as of December 31, 2002 and
2003,  and  the  related  consolidated  statements  of  operations,  changes  in
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2003. Our audits also included  financial  statement schedule
listed in Item 19 of the Company's 20-F. These financial statements and schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion  on these  financial  statements  and  schedule  based on our
audits.  We did not audit the  financial  statements  of "Supercom  Asia Pacific
Limited" a subsidiary, the financial statements of which reflect total assets of
5.7% of the  consolidated  assets as of December 31, 2003, and total revenues of
29% of the consolidated  revenues for the year then ended. Those statements were
audited  by other  auditors  whose  report  has been  furnished  to us,  and our
opinion,  insofar as it relates to the data  included  for this  subsidiary,  is
based solely on the report of the other auditors.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.

         In our  opinion,  based  on our  audits  and the  report  of the  other
auditors,  the  consolidated  financial  statements  referred to above,  present
fairly, in all material  respects,  the consolidated  financial  position of the
Company  and  its  subsidiaries  as of  December  31,  2002  and  2003,  and the
consolidated  results of their  operations  and cash flows for each of the three
years in the period ended  December  31, 2003,  in  conformity  with  accounting
principles  generally  accepted  in  the  United  States.  Additionally,  in our
opinion, the related financial statement schedule when considered in relation to
the basic financial statements and schedule taken as a whole, presents fairly in
all material respects the information set forth therein.



 Tel-Aviv, Israel                                 KOST FORER GABBAY & KASIERER
 March 22, 2004                                 A Member of Ernst & Young Global
--------------------------------------------------------------------------------


                                       64
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                                --------------------
                                                                                 2002         2003
                                                                                -------      -------
<S>                                                                             <C>          <C>
     ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                                    $ 4,567      $ 1,912
   Restricted cash deposits                                                          53          681
   Short-term deposit                                                                --        1,196
   Marketable debt securities                                                       609          117
Trade  receivables (net of allowance for doubtful  accounts of $ 1,200 and
     $ 3,333 as of December 31, 2002 and 2003, respectively)                      2,202        1,808
   Other accounts receivable and prepaid expenses                                   517          680
   Inventories                                                                    3,144        3,236
                                                                                -------      -------

TOTAL current assets                                                             11,092        9,630
                                                                                -------      -------
 LONG-TERM INVESTMENTS:
   Long-term trade receivables                                                       --          364
   Investment in an affiliate and others                                            323          275
   Severance pay fund                                                               288          333
                                                                                -------      -------

                                                                                    611          972
                                                                                -------      -------

 PROPERTY AND EQUIPMENT, NET                                                      1,880        1,676
                                                                                -------      -------

 OTHER ASSETS                                                                       173          156
                                                                                -------      -------

                                                                                $13,756      $12,434
                                                                                =======      =======
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       65
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                           -----------------------
                                                                             2002           2003
                                                                           --------       --------
<S>                                                                        <C>            <C>
     LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term bank credit and current maturities of long-term loan          $    851       $  2,131
  Trade payables                                                                691          1,085
  Employees and payroll accruals                                                192            161
  Accrued expenses and other liabilities                                      1,734            822
                                                                           --------       --------

TOTAL current liabilities                                                     3,468          4,199
                                                                           --------       --------

LONG-TERM LIABILITIES:
  Long-term loan, net of current maturities                                     429            187
  Accrued severance pay                                                         362            436
                                                                           --------       --------

TOTAL long-term liabilities                                                     791            623
                                                                           --------       --------

COMMITMENTS AND CONTINGENT LIABILITIES

SHAREHOLDERS' EQUITY:
  Share capital:
    Ordinary shares of NIS 0.01 par value -
      Authorized: 26,500,000 shares as of December 31, 2002 and 2003;
      Issued and outstanding: 12,706,339 and 12,906, 872 shares as of
      December 31, 2002 and 2003, respectively                                   40             40
  Additional paid-in capital                                                 25,730         25,814
  Deferred stock compensation                                                   (26)            --
  Accumulated deficit                                                       (16,247)       (18,242)
                                                                           --------       --------

TOTAL shareholders' equity                                                    9,497          7,612
                                                                           --------       --------

                                                                           $ 13,756       $ 12,434
                                                                           ========       ========
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       66
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARES DATA

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED
                                                                                   DECEMBER 31,
                                                                  ----------------------------------------------
                                                                      2001             2002             2003
                                                                  ------------     ------------     ------------
<S>                                                               <C>              <C>              <C>
Revenues                                                          $      6,889     $      8,027     $      7,244
Cost of revenues                                                         2,574            1,830            3,102
                                                                  ------------     ------------     ------------

Gross profit                                                             4,315            6,197            4,142
                                                                  ------------     ------------     ------------

Operating expenses:
  Research and development                                               1,225            1,334              918
  Selling and marketing, net                                             4,628            2,828            3,026
  General and administrative                                             3,604            1,988            1,829
                                                                  ------------     ------------     ------------

TOTAL operating expenses                                                 9,457            6,150            5,773
                                                                  ------------     ------------     ------------

Operating income (loss)                                                 (5,142)              47           (1,631)
Financial income (expenses), net                                           123              (35)            (233)
Other income (expenses), net                                              (241)           6,203              (83)
                                                                  ------------     ------------     ------------

Income (loss) before income taxes                                       (5,260)           6,215           (1,947)
Equity in losses of affiliates and impairment, net of taxes                 --              (38)             (48)
                                                                  ------------     ------------     ------------

Net income (loss) from continuing operations                            (5,260)           6,177           (1,995)

Loss from discontinued operations                                        1,288              427               --
                                                                  ------------     ------------     ------------

Net income (loss)                                                 $     (6,548)    $      5,750     $     (1,995)
                                                                  ============     ============     ============

Net earnings (loss) per share:

  Basic and diluted earnings (loss) from continuing operations    $      (0.42)    $       0.49     $      (0.15)
                                                                  ============     ============     ============

  Basic and diluted loss from discontinued operations             $      (0.10)    $      (0.04)    $         --
                                                                  ============     ============     ============

  Basic and diluted net earnings (loss) per share                 $      (0.52)    $       0.45     $      (0.15)
                                                                  ============     ============     ============

  Weighted average number of Ordinary shares outstanding            12,706,339       12,706,339       12,718,426
                                                                  ============     ============     ============
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       67
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNT

<TABLE>
<CAPTION>
                                                                                     OTHER                                   TOTAL
                                    NUMBER OF             ADDITIONAL   DEFERRED    ACCUMULATED                  TOTAL        SHARE-
                                    ORDINARY      SHARE    PAID-IN      STOCK     COMPREHENSIVE ACCUMULATED COMPREHENSIVE   HOLDERS'
                                     SHARES      CAPITAL   CAPITAL   COMPENSATION INCOME (LOSS)   DEFICIT   INCOME (LOSS)    EQUITY
                                    ----------   -------  ---------- ------------ ------------- ----------- -------------   --------

<S>                                 <C>            <C>      <C>         <C>           <C>        <C>           <C>          <C>
 Balance as of January 1, 2001      12,706,339     $ 40     $25,752     $(114)        $ 116      $(15,449)                  $10,345
 Forfeiture of stock options                --       --         (22)       22            --            --                        --
 Deferred stock compensation                --       --         219      (219)           --            --                        --
 Amortization of deferred
   stock compensation                       --       --          --        66            --            --                        66
 Net loss                                   --       --          --        --            --        (6,548)     $(6,548)      (6,548)
                                    ----------     ----     -------     -----         -----      --------      -------      -------
 Total comprehensive loss                                                                                      $(6,548)
                                                                                                               =======
 Balance as of December 31, 2001    12,706,339       40      25,949      (245)          116       (21,997)                    3,863

 Forfeiture of stock options
   held by Inksure's employees              --       --        (219)      219            --            --                        --
 Other comprehensive income:
 Functional currency adjustment
   due to sale of Inksure                   --       --          --        --          (116)           --      $  (116)        (116)
 Net income                                 --       --          --        --            --         5,750        5,750        5,750
                                    ----------     ----     -------     -----         -----      --------      -------      -------
 Total comprehensive income                                                                                    $ 5,634
                                                                                                               =======
 Balance as of December 31, 2002    12,706,339       40      25,730       (26)           --       (16,247)                    9,497

 Exercise of stock options             200,533     *)--          84        --            --            --           --           84
 Amortization of stock
   compensation                             --       --          --        26            --            --                        26

 Net loss                                   --       --          --                                (1,995)     $(1,995)      (1,995)
                                    ----------     ----     -------     -----         -----      --------      -------      -------
 Total comprehensive loss                                                                                      $(1,995)
                                                                                                               =======
 Balance as of December 31, 2003    12,906,872     $ 40     $25,814        --            --      $(18,242)                  $ 7,612
                                    ==========     ====     =======     =====         =====      ========                   =======
</TABLE>

*) Less than $ 1.


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       68
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                   ---------------------------------------
                                                                                    2001            2002            2003
                                                                                   -------         -------         -------
<S>                                                                                <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                               $(6,548)        $ 5,750         $(1,995)
   Loss for the period from discontinued operations                                  1,288             427              --
                                                                                   -------         -------         -------

Net income (loss) from continuing operations                                        (5,260)          6,177          (1,995)

Adjustments  to  reconcile  net  income  (loss) to net cash  used in
   operating activities:
   Depreciation and amortization                                                       372             442             371
   Equity in losses of an affiliates, net                                               --              38              --
   Accrued severance pay, net                                                         (288)            (20)             29
   Amortization of deferred stock compensation                                          66              --              26
   Decline in market value below cost of marketable debt securities                     --              --              52
   Decrease (increase) in trade receivables                                           (412)         (2,061)             30
   Decrease (increase) in other accounts receivable and prepaid expenses               272            (153)            (79)
   Increase in inventories                                                            (945)           (217)            (92)
   Increase (decrease) in trade payables                                              (312)           (355)            394
   Decrease in employees and payroll accruals                                          (14)           (341)            (31)
   Increase (decrease) in accrued expenses and other liabilities                      (390)            881            (912)
   Loss on sale of property and equipment                                              511             209               5
   Accumulated interest on marketable debt securities                                   --              (1)             --
   Gain on issuance of subsidiary's shares                                              --          (1,802)             --
   Gain on sale of subsidiary's shares                                                  --          (1,936)             --
   Accumulated interest on long-term loan                                               --              --               2
   Write-off of investment in an affiliate                                              --              --              48
   Gain on sale of subsidiary                                                           --          (2,685)             --
                                                                                   -------         -------         -------

Net cash used in operating activities                                               (6,400)         (1,824)         (2,152)

Adjustments to reconcile net loss to net cash used in operating activities
   from discontinued operations                                                        122             375              --
Net cash used in operating activities from discontinued operations                  (1,166)            (52)             --
                                                                                   -------         -------         -------

Net cash used in operating activities of continuing operations                      (7,566)         (1,876)         (2,152)
                                                                                   -------         -------         -------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of property and equipment                                        719              14               2
   Purchase of property and equipment                                               (1,891)            (73)            (87)
   Proceeds from short-term deposit                                                     --             100              --
   Investment in short-term deposits                                                  (100)             --          (1,196)
   Proceeds from sale of subsidiary                                                     --           4,352              --
   Investment in marketable debt securities                                             --            (908)             --
   Proceeds from redemption of marketable debt securities                               --             362             440
   Restricted cash deposits                                                             --             (53)           (628)
   Realization of investment in a subsidiary                                            --             (58)             --
   Proceeds from issuance of shares in Inksure                                          --             230              --
   Proceeds from sale of subsidiary's shares                                            --           1,630              --
   Net cash used for investment activities from discontinued operations               (549)             --              --
   Investment in other assets                                                           --              --             (70)
                                                                                   -------         -------         -------

Net cash provided by (used in) investing activities                                 (1,821)          5,596          (1,539)
                                                                                   -------         -------         -------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Short-term bank credit, net                                                       1,076            (192)          1,196
   Proceeds from long-term loan                                                         --             850             250
   Principal payment of long-term loan                                                  --             (64)           (410)
Net cash provided by (used in) financing activities from discontinued
   operations                                                                           20             (20)             --
                                                                                   -------         -------         -------

Net cash provided by financing activities                                            1,096             574           1,036
                                                                                   -------         -------         -------

Increase (decrease) in cash and cash equivalents                                    (8,291)          4,294          (2,655)
Less - increase (decrease) in cash and cash equivalents from discontinued
   operations                                                                           11              (1)             --
Cash and cash equivalents at the beginning of the year                               8,554             274           4,567
                                                                                   -------         -------         -------

Cash and cash equivalents at the end of the year                                   $   274         $ 4,567         $ 1,912
                                                                                   =======         =======         =======

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
   Receivables on account of shares                                                $    --         $    --         $    84
                                                                                   =======         =======         =======
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       69
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED
                                                                                              DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                  2001           2002             2003
                                                                             --------------  --------------   --------------

<S>                                                                            <C>             <C>              <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

Cash paid during the year for:

   Interest                                                                    $      75       $      60        $     135
                                                                             ==============  ==============   ==============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

   Transfer of inventory to property and equipment                             $      --       $     789        $      --
                                                                             ==============  ==============   ==============
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                       70
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-      GENERAL

              a.     Supercom Ltd. ("the Company") was established in 1988 in
                     Israel and has been listed for trade since October 23, 2003
                     on Euronext Brussels New Market, under the symbol SUP (see
                     Note 17b).

                     The Company is a technology integrator and provider of
                     high-end smartcard systems. The Company functions as a
                     "one-stop" technological integration and support source for
                     system integrators, utilizing its unique know-how and
                     technologies. The Company is also a developer and provider
                     of a wide-range of complementary technologies and solutions
                     for the smartcard market. The Company develops and markets
                     innovative smartcards, smartcard-related products,
                     proprietary smartcard production technologies and advanced
                     identification technologies, complemented by brand
                     protection and authentication technologies. The Company
                     also sells specially designed kits containing the raw
                     materials necessary to produce cards and smartcards.

                     The Company sells its products through centralized
                     marketing offices in distinct world regions. The Company
                     has a subsidiary in Hong-Kong, Supercom Asia Pacific
                     Limited; in which the Company holds 100% of the shares, and
                     in the United States SuperCom Inc. that was established by
                     the Company during 2003 in order to market commercial and
                     governmental contactless smart cards and readers in the
                     United States.

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

                     The Company derived most of its revenues from several major
                     customers (see Note 14).

                     The Company purchases certain raw materials used in its
                     products from a sole supplier. Although there are only a
                     limited number of manufacturers of those particular raw
                     materials, management believes that other suppliers could
                     provide similar components on comparable terms without
                     affecting operating results.

              c.     Sale of Inksure Technologies Inc.:

                     During March 2002, the Company divested part of its
                     investment in InkSure Technologies Inc. (a subsidiary), to
                     Elad Ink, a privately held investment company. Under the
                     terms of the transaction, the Company sold 1,141,553 shares
                     in the subsidiary for $ 1,000.

                     During May 2002, the Company divested part of its
                     investment in InkSure Technologies Inc. (a subsidiary), to
                     ICTS Information Systems BV, a member of the ICTS group
                     (NASDAQ: ICTS). Under the terms of the transaction, the
                     Company sold 782,771 shares in the subsidiary for $ 1,000.

                     As a result of those divestitures, the Company realized
                     gains net of expenses in the amount of $ 1,936.

                     In July 2002, Inksure Technologies Inc. issued 3,850,945
                     Ordinary shares to a private investor. In September 2002,
                     Inksure Technologies Inc. issued 310,560 Ordinary shares to
                     a private investor. As a result of those placements, the
                     Company had gains net of expenses in the amount of $ 1,802.


                                       71
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-      GENERAL (CONT.)

                     On October 2, 2002,  the  Company  divested  the  remaining
                     investment   in   InkSure   Technologies   Inc.,   to  ICTS
                     Information Systems BV. Under the terms of the transaction,
                     the Company sold 3,075,676 shares in InkSure for $ 4,583.

                     The  following  is a  summarized  information  for  Inksure
                     Technologies  Inc  for  a  period  of  three  months  ended
                     September 30, 2002.

                     Current assets                          $ 5,686
                     Non-current assets                          866
                     Current liabilities                         643
                     Long-term liabilities                        78
                     Revenues                                    803
                     Gross profit                                682
                     Net loss                                    122


              d.     Discontinued operations:

                     In December 2002, the Company  discontinued  the operations
                     of two subsidiaries, ("Genodous Inc." and "Kromotek, Inc.")
                     and disposed of all assets  related to them. The operations
                     and  cash  flows  of  those  two  subsidiaries   have  been
                     eliminated from the operations of the Company.  The Company
                     has  no  intention  of  continuing  the  activities  of the
                     subsidiaries.  The  Company's  plan for  discontinuing  the
                     operations of the subsidiaries  involved (i) termination of
                     all  employees  related  to those  subsidiaries,  including
                     payment  of  all   statutory  and   contractual   severance
                     payments,  by the end of the fourth  quarter  of 2002,  and
                     (ii) disposal of the equipment.

                     The  discontinuance  of operations of the  subsidiaries was
                     accounted  for in  accordance  with  Statement of Financial
                     Accounting Standard No. 144, "Accounting for the Impairment
                     or Disposal of Long- Lived Assets" ("SFAS No. 144").

                     As a result of the above,  the results of operations of the
                     two subsidiaries  were reported  separately as discontinued
                     operations  in the  statement of  operations  for the years
                     ended December 31, 2001, 2002 and 2003,  respectively,  and
                     are summarized as follows:

                                                 YEAR ENDED
                                                DECEMBER 31,
                                     ----------------------------------
                                      2001          2002          2003
                                     ------        ------        ------

   Revenues                          $  373        $   --        $   --

Operating expenses:
   Research and development           1,063           132            --
   Selling and marketing, net           113            46            --
   General and administrative           497            --            --
                                     ------        ------        ------

   Total operating loss               1,300           178            --
   Financial income                      12            --            --
   Other expenses                        --           249            --
                                     ------        ------        ------

   Net loss                          $1,288        $  427        $   --
                                     ======        ======        ======

              e.     The Company management has decided to increase its doubtful
                     accounts in an aggregate amount of $ 2,133 due to  the debt
                     of the Ukraine Government (see Note 10f).


                                       72
<PAGE>
                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES

              The  consolidated  financial  statements  have  been  prepared  in
              accordance with accounting  principles  generally  accepted in the
              United States.

              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.

              b.     Financial statements in U.S. dollars:

                     A   majority   of  the  sales  of  the   Company   and  its
                     subsidiaries'  is made  in U.S.  dollars.  In  addition,  a
                     substantial  portion  of the costs of the  Company  and its
                     subsidiaries' is incurred in dollars.

                     Company's  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.

                     Accordingly,  monetary  accounts  maintained  in currencies
                     other than the dollar are remeasured  into U.S.  dollars in
                     accordance   with   Statement   No.  52  of  the  Financial
                     Accounting   Standards  Board  ("FASB")  "Foreign  Currency
                     Translation".  All  transaction  gains and losses  from the
                     remeasurement of monetary balance sheet items are reflected
                     in the  statements  of  operations  as financial  income or
                     expenses as appropriate.

                     Through  1999,  the  financial  statements of a subsidiary,
                     whose  functional  currency was not the U.S.  dollar,  have
                     been  translated  into U.S.  dollars,  in  accordance  with
                     Statement of Financial  Accounting  Standards  ("SFAS") 52,
                     "Foreign Currency Translation".  All balance sheet accounts
                     have been translated  using the exchange rates in effect at
                     the balance  sheet date.  Statement of  operations  amounts
                     have been  translated  using the average  exchange rate for
                     the year. The resulting aggregate  translation  adjustments
                     are reported as a component of other  comprehensive  income
                     (loss).  Starting  January 1, 2000, the U.S.  dollar became
                     the functional currency of the subsidiary.

              c.     Principles of consolidation:

                     The consolidated  financial statements include the accounts
                     of  the   Company   and  its   majority   of   wholly-owned
                     subsidiaries (unless the minority shareholders have certain
                     approval or veto rights) in Israel,  the United  States and
                     Hong-Kong. Intercompany transactions and balances have been
                     eliminated upon consolidation.

              d.     Cash equivalents:

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


                                       73
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              e.     Restricted cash:

                     Restricted  cash is primarily  invested in  certificates of
                     deposit, which mature within one year and is used to secure
                     an agreement with a customer or a bank.

              f.     Short-term deposits:

                     The Company  classifies  deposits  with  maturities of more
                     than  three  months  and less  than one year as  short-term
                     deposits.  The  short-term  deposits are presented at their
                     cost.

              g.     Marketable securities:

                     The Company  accounts for investments in debt securities in
                     accordance with Statement of Financial  Accounting Standard
                     No. 115,  "Accounting  for Certain  Investments in Debt and
                     Equity Securities" ("SFAS No. 115").  Management determines
                     the appropriate  classification  of its investments in debt
                     and  equity   securities   at  the  time  of  purchase  and
                     reevaluates such determinations at each balance sheet date.
                     Debt securities are classified as held-to-maturity when the
                     Company  has the  positive  intent and  ability to hold the
                     securities  to maturity and are stated at  amortized  cost.
                     The  amortized  cost  of  held-to-maturity   securities  is
                     adjusted  for  amortization  of premiums  and  accretion of
                     discounts to  maturity.  Such  amortization  any decline in
                     value  judged to be other than  temporary  and interest are
                     included in financial income, net. At December 31, 2003 and
                     2002,   marketable   debt  securities  were  designated  as
                     held-to-maturity.

                     According to Staff  Accounting  Bulletin No. 59 ("SAB 59"),
                     management  is required to evaluate  each period  whether a
                     security's  decline in value is other than  temporary.  The
                     Company considers fair value below cost for two consecutive
                     quarters to be other than a temporary impairment.

                     Due to a permanent  decline in the value of marketable debt
                     securities,  the  Company  recorded  an  impairment  of its
                     investments in those securities. (See Note 3).

              h.     Inventories:

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

                     Raw  materials,  parts  and  supplies  - using  the  moving
                     "average cost" method.

                     Work-in-progress - represents the manufacturing costs.

                     Finished  products  - on the basis of direct  manufacturing
                     costs,   with   the   addition   of   allocable,   indirect
                     manufacturing costs.


                                       74
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              i.     Investment in an affiliate and majority owned subsidiary:

                     The  investment  in a company,  over which the  Company can
                     exercise   significant   influence,   over   operating  and
                     financial policies of the investee (generally,  entities in
                     which the Company  holds 20% to 50% of  ownership or voting
                     rights) is presented using the equity method of accounting.

                     The investment in a  majority-owned  company is represented
                     using  the  equity   method  of   accounting   due  to  the
                     participation rights that the minority has. (See Note 5)

              j.     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            6 - 33
                     Office furniture and equipment                6 - 20
                     Leasehold improvements                 Over the term of the
                                                                   lease

                     The Company's  long-lived  assets and certain  identifiable
                     intangibles  are reviewed for impairment in accordance with
                     Statement  of  Financial   Accounting   Standard  No.  144,
                     "Accounting  for the  Impairment  or Disposal of Long-Lived
                     Assets"  ("SFAS  No.  144")  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  assets.   If  such  assets  are
                     considered to be impaired,  the impairment to be recognized
                     is measured by the amount by which the  carrying  amount of
                     the assets exceeds the fair value of the assets.  Assets to
                     be  disposed  of by sale are  reported  at the lower of the
                     carrying amount or fair value less costs to sell.

              k.     Accrued severance pay:

                     The liabilities of the Company and its Israeli subsidiaries
                     for  severance  pay are  calculated  pursuant  to  Israel's
                     Severance  Pay Law based on the most  recent  salary of the
                     employees  multiplied  by the number of years of employment
                     as of the balance sheet date. Employees are entitled to one
                     month's  salary for each year of  employment,  or a portion
                     thereof.  The Company's  liability for all its employees is
                     fully  provided  by monthly  deposits  with  severance  pay
                     funds,  insurance policies and by an accrual.  The value of
                     these  policies is  recorded  as an asset in the  Company's
                     balance sheet.

                     The deposited funds include  profits  accumulated up to the
                     balance sheet date.  The  deposited  funds may be withdrawn
                     only upon the  fulfillment  of the  obligation  pursuant to
                     Israel's  Severance Pay Law or labor agreements.  The value
                     of the  deposited  funds is  based on the cash  surrendered
                     value of these policies and includes immaterial profits.


                                       75
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                     Severance expenses  (revenues) for the years ended December
                     31, 2001, 2002 and 2003 amounted to $ (41), $ 88 and $ 153,
                     respectively.

              l.     Intangible assets:

                     Intangible assets acquired on or after July 1, 2001, should
                     be  amortized  over their  useful  lives  using a method of
                     amortization   that  reflects  the  pattern  in  which  the
                     economic  benefits of the intangible assets are consumed or
                     otherwise used up, in accordance with SFAS No. 142.

                     The  Company's  identifiable  intangibles  are reviewed for
                     impairment in accordance  with SFAS No. 144 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
                     assets.  If such assets are considered to be impaired,  the
                     impairment  to be  recognized  is measured by the amount by
                     which the  carrying  amount of the assets  exceeds the fair
                     value of the assets.

              m.     Revenue recognition:

                     The Company and its  subsidiaries  generate  their revenues
                     from the sale of products,  maintenance and royalties.  The
                     sale of products  involves the sale of the Smartcard System
                     and raw materials.  The Company sells its products  through
                     centralized marketing offices in distinct world regions.

                     Product sales of smartcard systems,  contactless smart card
                     Production  Line 1000 (SPPL 1000),  and raw  materials  are
                     recognized in accordance with Staff Accounting Bulletin No.
                     101,  "Revenue  Recognition in Financial  Statements" ("SAB
                     No. 101") when persuasive  evidence of an agreement exists,
                     delivery of the product has  occurred,  the fee is fixed or
                     determinable,     collectability    is    probable,     and
                     inconsequential  or  perfunctory  performance   obligations
                     remain.

                     In December 2003, the SEC issued Staff Accounting  Bulletin
                     ("SAB") No. 104,  "Revenue  Recognition,"  ("SAB No.  104")
                     which revises or rescinds  certain sections of SAB No. 101,
                     "Revenue  Recognition," in order to make this  interpretive
                     guidance consistent with current  authoritative  accounting
                     and auditing  guidance and SEC rules and  regulations.  The
                     changes noted in SAB No. 104 did not have a material effect
                     on  the  Company's   consolidated  results  of  operations,
                     consolidated financial position or consolidated cash flows.

                     In  November  2002,  Emerging  Issues  Task Force  ("EITF")
                     reached  a   consensus   on  Issue  No.   00-21,   "Revenue
                     Arrangements with Multiple  Deliverables,  " EITF Issue No.
                     00-21 provides  guidance on how to account for arrangements
                     that  involve  the  delivery  or  performance  of  multiple
                     products,   services  and/or  rights  to  use  assets.  The
                     provisions  of EITF  Issue No.  00-21  applied  to  revenue
                     arrangements entered into in fiscal periods beginning after
                     June 15, 2003.


                                       76
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                     Additionally,  companies  will be  permitted  to apply  the
                     consensus   guidance   in  this   issue  to  all   existing
                     arrangements  as  the  cumulative  effect  of a  change  in
                     accounting principle in accordance with APB Opinion No. 20,
                     "Accounting Changes".  The adoption of EITF Issue No. 00-21
                     did not have a material  impact on the Company's  financial
                     position, cash flows or results of operations.

                     The  Company  does not  provide  a right of  return  to its
                     customers.

                     The  Company  provides  maintenance  services.  Maintenance
                     income is recognized when the services are performed.

                     The  Company is  entitled  to  royalties  upon the sales of
                     smartcard   systems  that  are  recognized  when  they  are
                     reported to the Company.

                     Deferred  revenues and customer  advances  include  amounts
                     received from  customers  for which  revenues have not been
                     recognized.

              n.     Research and development costs

                     Smart-Card  systems  research  and  development  costs  are
                     charged to the statement of operations as incurred.

                     Research and  development  costs incurred in the process of
                     software  production before  establishment of technological
                     feasibility,  are charged to expenses as incurred. Costs of
                     the production of a product master  incurred  subsequent to
                     the   establishment   of   technological   feasibility  are
                     capitalized  according to the  principles set forth in SFAS
                     No. 86 "Accounting for the Costs of Computer Software to be
                     Sold, Leased or Otherwise Marketed". Based on the Company's
                     product development process,  technological  feasibility is
                     established upon completion of a detailed program design or
                     a working model.

                     Costs  incurred by the Company  between  completion  of the
                     detailed  program design and the point at which the product
                     is ready for general release have been capitalized.

                     Capitalized software development costs will be amortized on
                     a product-by-product  basis commencing with general product
                     release by the greater of the amount  computed  using:  (i)
                     the ratio that  current  gross  revenues  from sales of the
                     software  bear to the  total  of  current  and  anticipated
                     future gross revenues from sales of that software,  or (ii)
                     the straight-line  method over the estimated useful life of
                     the software product (three years).

                     The Company assesses the  recoverability of this intangible
                     asset  on  a  regular  basis  by  determining  whether  the
                     amortization  of the asset over its  remaining  life can be
                     recovered through  undiscounted future operating cash flows
                     from the specific  software product sold. Based on its most
                     recent analyses,  management believes that no impairment of
                     capitalized   software   development  costs  exists  as  of
                     December 31, 2003.


                                       77
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              o.     Income taxes:

                     The Company and its  subsidiaries  account for income taxes
                     in  accordance  with  Statement  of  Financial   Accounting
                     Standards (SFAS) 109,  "Accounting for 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.

              p.     Concentrations of credit risk:

                     Financial  instruments that potentially subject the Company
                     to  concentrations  of credit risk consist  principally  of
                     cash and cash equivalents,  marketable securities and trade
                     receivables.  The Company's  trade  receivables are derived
                     from  sales  to  customers   located  primarily  in  Europe
                     (including  Eastern  Europe),   South-East  Asia,  England,
                     Turkey, the United States and Israel.  Management  believes
                     that its credit risk is moderated  by the  diversity of its
                     customers and geographic  sales areas. The Company performs
                     ongoing  credit  evaluations  of its  customer's  financial
                     conditions.   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 marketable  debt securities
                     are deposited with major banks in Israel, Hong-Kong and the
                     United  States.  Management  believes  that  the  financial
                     institutions  that  hold  the  Company's   investments  are
                     financially  sound,  and  accordingly,  minimal credit risk
                     exists with respect to these investments.

                     The   Company's    marketable   debt   securities   include
                     investments  in  securities of U.S.  corporations.  Minimal
                     credit risk exists with  respect to these  marketable  debt
                     securities.

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

              q.     Basic and diluted net earnings (loss) per share:

                     Basic net  earnings  (loss) per share is computed  based on
                     the weighted average number of Ordinary shares  outstanding
                     during each year.  Diluted net earnings (loss) per share is
                     computed  based on the weighted  average number of Ordinary
                     shares  outstanding  during  each year,  plus the  dilutive
                     potential  stock  options  outstanding  during the year, in
                     accordance  with FASB  Statement  No.  128,  "Earnings  Per
                     Share".

                     All  outstanding  stock options have been excluded from the
                     calculation  of the diluted net  earnings  (loss) per share
                     because  all  such  securities  are  anti-dilutive  for all
                     periods  presented.  The number of outstanding  options was
                     543,495,   880,712  and  1,534,514,  for  the  years  ended
                     December 31, 2001, 2002 and 2003, respectively.


                                       78
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              r.     Fair value of financial instruments:

                     The  following  methods  and  assumptions  were used by the
                     Company  and its  subsidiaries  in  determining  their fair
                     value disclosures for financial instruments:

                     At December 31, 2003 and 2002, the carrying amounts of cash
                     and cash equivalents,  restricted cash deposits, short-term
                     deposits,  trade  receivables,  other accounts  receivable,
                     trade  payables,  short-term bank credit and other accounts
                     payable  approximate their fair value due to the short-term
                     maturity of such instruments. The fair value for marketable
                     securities is based on quoted market prices.

                     The  carrying  amount  of  the  Company's   long-term  loan
                     approximates  its fair value.  The fair value was estimated
                     using   discounted  cash  flows  analyses,   using  current
                     interest rates for loans or similar terms and maturities.

              s.     Accounting for stock-based compensation:

                     The  Company   has  elected  to  account  for   stock-based
                     compensation   in   accordance   with  the   provisions  of
                     Accounting  Principles  Board  Opinion  No. 25  ("APB-25"),
                     "Accounting  for Stock Issued to Employees".  Under APB-25,
                     when the exercise  price of the Company's  stock options is
                     lower than the market price of the underlying shares on the
                     date of grant, no compensation expense is recognized.

                     Under Statement of Financial  Accounting  Standard No. 123,
                     pro forma  information  regarding net income and income per
                     share  is  required,  and  has  been  determined  as if the
                     Company had accounted for its employee  share options under
                     the fair value method of SFAS No. 123.

                     The fair  value of these  options is  amortized  over their
                     vesting  period and  estimated at the date of grant using a
                     Black-Scholes  option  pricing  model  with  the  following
                     weighted-average  assumptions  for  2001,  2002  and  2003:
                     risk-free  interest  rate of 3%,  4% and 3%,  respectively,
                     with a dividend  yielded  of 0% for each  year,  volatility
                     factors  of the  expected  market  price  of the  Company's
                     Ordinary shares of 1.44, 0.515 and 1.642, respectively, and
                     a  weighted-average  expected  life of the  option  of five
                     years for each year.


                                       79
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                     The following table summarizes  relevant  information as to
                     reported results under the Company's intrinsic value method
                     of   accounting   for  stock  awards,   with   supplemental
                     information as if the fair value recognition  provisions of
                     SFAS No. 123,  "Accounting  for Stock Based  Compensation,"
                     had been applied:

                     Pro forma information under SFAS 123:

<TABLE>
<CAPTION>

                                                                                        YEAR ENDED DECEMBER 31,
                                                                                ---------------------------------------
                                                                                 2001            2002            2003
                                                                                -------         -------         -------
                     <S>                                                        <C>             <C>              <C>
                     Net income (loss) from continuing operations as
                       reported                                                 $(5,260)        $ 6,177          (1,995)
                     Deduct: Stock based compensation expenses
                       determined under fair value based method                     297             256             280
                     Add: stock based compensation expenses included in
                         reported net income (loss)                                  66              --              26
                                                                                -------         -------         -------
                     Pro forma net income (loss) from continuing
                         operations                                             $(5,491)        $ 5,921         $(2,249)
                                                                                =======         =======         =======
                     Basic and diluted net earnings (loss) per share
                       from continuing operations as reported                   $ (0.42)        $  0.49         $ (0.15)
                                                                                =======         =======         =======

                     Pro forma basic and diluted net earnings (loss)
                       from continuing operations                               $ (0.43)        $  0.47         $ (0.17)
                                                                                =======         =======         =======

                     Net loss from discontinuing operations as reported         $(1,288)        $  (427)        $    --
                     Deduct: Stock based compensation expenses
                       determined under fair value based method                      --              --         $    --
                     Add: stock based compensation expenses included in
                       reported net income (loss)                                    --              --         $    --
                                                                                -------         -------         -------



                     Pro forma net loss from discontinuing operations           $(1,288)        $  (427)        $    --
                                                                                =======         =======         =======
                     Pro forma basic and diluted loss from discontinuing
                       operations                                               $ (0.10)        $ (0.04)        $    --
                                                                                =======         =======         =======

                     Net income (loss) as reported                              $(6,548)        $ 5,750         $(1,995)
                     Deduct: Stock based compensation expenses
                       determined under fair value based method                     297             256             280
                     Add: stock based compensation expenses included in
                       reported net income (loss)                                    66              --              26
                                                                                -------         -------         -------

                     Pro forma net income (loss)                                $(6,779)        $ 5,494         $(2,249)
                                                                                =======         =======         =======
                     Basic and diluted net earnings (loss) per share as
                       reported                                                 $ (0.52)        $  0.45         $ (0.15)
                                                                                =======         =======         =======

                     Pro forma basic and diluted loss                           $ (0.54)        $(0.434)        $ (0.17)
                                                                                =======         =======         =======
</TABLE>

              t.     Non-royalty-bearing grants:

                     The Company  received  non-royalty-bearing  grants from the
                     Fund for Encouragement of Marketing Activity.  These grants
                     are  recognized at the time the Company is entitled to such
                     grants on the basis of the costs incurred and included as a
                     reduction in sales and marketing expenses.


                                       80
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              u.     Advertising costs:

                     The  Company  expenses   advertising   costs  as  incurred.
                     Advertising expenses for the years ended December 31, 2001,
                     2002  and 2003  were  approximately  $ 295,  $ 48 and $ 58,
                     respectively.

              v.     Recently issued accounting pronouncements:

                     In November 2002, the FASB issued FASB  Interpretation  No.
                     45, "Guarantor's Accounting and Disclosure Requirements for
                     Guarantees,  Including Indirect  Guarantees of Indebtedness
                     of Others,  An Interpretation of FASB Statements No. 5, 57,
                     and 107 and Rescission of FASB Interpretation No. 34" ("FIN
                     No. 45").  FIN No. 45 elaborates on the  disclosures  to be
                     made by a guarantor  in its  interim  and annual  financial
                     statements about its obligations  under certain  guarantees
                     that it has issued.  It also  clarifies that a guarantor is
                     required to recognize,  at the inception of a guarantee,  a
                     liability for the fair value of the  obligation  undertaken
                     in issuing the  guarantee.  FIN No. 45 does not prescribe a
                     specific   approach   for   subsequently    measuring   the
                     guarantor's  recognized  liability  over  the  term  of the
                     related guarantee.  It also  incorporates,  without change,
                     the guidance in FASB  Interpretation No. 34, "Disclosure of
                     Indirect  Guarantees of  Indebtedness  of Others," which is
                     being superseded.  The disclosure  provisions of FIN No. 45
                     are effective for financial statements of interim or annual
                     periods  that  end  after   December  15,  2002,   and  the
                     provisions  for initial  recognition  and  measurement  are
                     effective on a prospective  basis for  guarantees  that are
                     issued or modified after December 31, 2002, irrespective of
                     a guarantor's year-end.  The adoption of FIN No. 45 did not
                     have a  material  impact on the  results of  operations  or
                     financial position of the Company.

                     In  December  2003,  the FASB  issued  additional  guidance
                     clarifying  the provisions of FASB  Interpretation  No. 46,
                     Consolidation   of   Variable   Interest    Entities,    an
                     Interpretation  of  ARB  No.  51  ("FIN  46-R").  FIN  46-R
                     provides a deferral  of FIN 46 for certain  entities  until
                     after  March 15,  2004.  FIN 46 requires  certain  variable
                     interest   entities  to  be  consolidated  by  the  primary
                     beneficiary  of the entity if the equity  investors  in the
                     entity  do not have the  characteristics  of a  controlling
                     financial interest or do not have sufficient equity at risk
                     for the entity to finance its activities without additional
                     subordinated  financial  support  from other  parties.  The
                     Company  believes  that the adoption of this  standard will
                     have  no  material  impact  on its  consolidated  financial
                     statements.


                                       81
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 3:-      MARKETABLE DEBT SECURITIES

              The following is a summary of held-to-maturity securities:

<TABLE>
<CAPTION>
                                                   AMORTIZED                   UNREALIZED                    ESTIMATED
                                                     COST                    GAINS (LOSSES)                  FAIR VALUE
                                          ---------------------------  ---------------------------  ----------------------------
                                              2002           2003          2002           2003          2002           2003
                                          ------------   ------------  ------------   ------------  ------------   -------------

<S>                                          <C>            <C>           <C>            <C>           <C>            <C>
               Corporate obligations         $    609       $    117      $    (15)      $    (12)     $   (594)      $   (105)
                                           ===========    ===========   ===========    ===========   ===========    ===========
</TABLE>

              All  marketable  debt  securities  will be redeemed by January 15,
              2004. In the fourth quarter of 2003, due to a permanent decline in
              value  for  some  of  the  securities,  the  Company  recorded  an
              impairment of its investment in those  securities.  The impairment
              was in the amount of $ 52.

NOTE 4:-      INVENTORIES

                                                              DECEMBER 31,
                                                       -------------------------
                                                          2002          2003
                                                       -----------   -----------

               Raw materials, parts and supplies       $       962   $     1,662
               Finished products                             2,182         1,574
                                                       -----------   -----------

                                                       $     3,144   $     3,236
                                                       ===========   ===========


NOTE 5:-      INVESTMENT IN AFFILIATES AND OTHERS

              a.     The Company holds 40% of an affiliate, which serves as a
                     regional marketing office responsible for marketing in the
                     former Soviet territories (excluding Ukraine and Moldavia).
                     During 2003, the affiliate downsized all of its operation,
                     and the Company decided to write-off its entire investment
                     in the affiliate in the amount of $ 48.

              b.     In December 1997, the Company established Supercom Slovakia
                     in equal parts with another investor as a result of a
                     transaction with the Slovakian ministry of interior.

                     In March 2000,  the Company  purchased an additional 16% of
                     Supercom Slovakia,  at the nominal value of $1, and granted
                     to the third  party a loan in the amount of $ 275,  bearing
                     interest  of 0.7% per  month for any  amounts  outstanding.
                     This interest is compounded to the outstanding principal of
                     the loan and will be repaid  under the same  conditions  of
                     the loan.

                     The  third  party  has an  option  to buy  back  16% of the
                     shares, for $ 1, subsequent to repayment of the loan to the
                     Company.

                     The  Company  currently  owns  66% of  Supercom  Slovakia's
                     outstanding  shares.  The  Company has  accounted  for this
                     investment  using the equity method of  accounting,  due to
                     the minority interest  participation rights. (See also Note
                     10c).


                                       82
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 6:-      PROPERTY AND EQUIPMENT

                                                        DECEMBER 31,
                                                      ----------------
                                                       2002      2003
                                                      ------    ------
              Cost:
                Computers and peripheral equipment    $2,287    $2,281
                Office furniture and equipment           410       408
                Leasehold improvements                 1,027     1,107
                                                      ------    ------

                                                       3,724     3,796
                                                      ------    ------
              Accumulated depreciation:
                Computers and peripheral equipment     1,423     1,412
                Office furniture and equipment           164       192
                Leasehold improvements                   257       516
                                                      ------    ------

                                                       1,844     2,120
                                                      ------    ------

              Depreciated cost                        $1,880    $1,676
                                                      ======    ======

              Depreciation  expenses for the years ended December 31, 2001, 2002
              and 2003 are $ 372, $ 442 and $ 371, respectively.

NOTE 7:-      OTHER ASSETS

              On November 17, 2003,  the Company  purchased 20% of the remaining
              shares of Supercom Asia Pacific from the minority in consideration
              of $ 70.

              The  acquisition  was accounted  for under the purchase  method of
              accounting.  Accordingly, the consideration of $ 70 was attributed
              to customer related intangible assets.

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                          ------------
                                                                          2002    2003
                                                                          ----    ----

              <S>                                                         <C>     <C>
              Customer related intangible assets                          $ --    $ 70
              Capitalized software production costs, net (see Note 2n)     173      86
                                                                          ----    ----

                                                                          $173    $156
                                                                          ====    ====
</TABLE>


                                       83
<PAGE>
                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 8:-      BANK CREDIT

              a.     As of December 31, 2003,  the Company had credit lines from
                     several banks in the aggregate amount of $ 1,957 (including
                     long-term  loans  credit  lines in the amount of $ 719,  of
                     which the  amount of $ 628 was  used),  of which $ 1,238 is
                     denominated in NIS and bears interest at the rate of Prime,
                     plus an  additional  1% - 3%, and $ 719 is  denominated  in
                     dollars  and bears  interest at the rate of LIBOR plus 2.5%
                     -3.2%.

                     The weighted  average  interest rate on the credit lines as
                     of December 31, 2002 and 2003 was approximately  11.71% and
                     approximately 7.7%, respectively.

                     In addition,  the Company received  short-term loans from a
                     bank in the amount of $ 500, under certain  conditions (see
                     Note 10e).  The  average  interest  rate on the loans as of
                     December 31, 2003, was approximately 5.7%.

                     The Company had an unused credit  facility in the amount of
                     approximately  $ 139 as of  December  31, 2003 (there is no
                     fee for the unused portion of the credit facility).

              B.     LONG-TERM LOANS:

                                                                    DECEMBER 31,
                                                                    ------------
                                                                    2002    2003
                                                                    ----    ----

                     Banks                                          $786    $628
                     Less - current maturities of long-term loans    357     441
                                                                    ----    ----

                                                                    $429    $187
                                                                    ====    ====

                     The loans bear annual average interest at the rate of LIBOR
                     +2.8%.

NOTE 9:-      ACCRUED EXPENSES AND OTHER LIABILITIES

              Customer advances                                   $  140  $  166
              Deferred revenues                                      304     437
              Accrued expenses                                       259     171
              Commissions                                            960      --
              Other                                                   71      48
                                                                  ------  ------

                                                                  $1,734  $  822
                                                                  ======  ======


                                       84
<PAGE>
                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 10:-     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 in 2006.

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

                     2004           $   370
                     2005               354
                     2006               308
                                    -------

                                    $ 1,032
                                    =======

                     Rent expenses for the years ended  December 31, 2001,  2002
                     and  2003,  were  approximately  $  571,  $ 414  and $ 312,
                     respectively.

              b.     Guarantees:

                     1.     The Company  obtained bank  guarantees in the amount
                            of $ 60, in order to secure the Company's lease and,
                            as a  condition  for those  guarantees,  the Company
                            deposited $ 60 with the bank. The Company provided a
                            guarantee  in favor  of Bank  Hapoalim  Ltd.  in the
                            amount of $ 450, for debt and other obligations. The
                            Company  provided bank guarantees in the amount of $
                            91, in order to secure other obligations.

                     2.     The Company  mortgaged its deposits in the amount of
                            $ 183 in Israel  Discount  Bank Ltd. in favor of the
                            bank,  and an amount of $ 117 in favor of Bank Otsar
                            Ha-Hayal Ltd.

                     3.     In order to secure an agreement with a customer, the
                            Company obtained short-term loans in the amount of $
                            500 and provided bank guarantees in the amounts of $
                            158 and $ 156, which were deposited by the Company.

              c.     Litigations

                     1.     On January 19, 2000, Supercom Slovakia,  a 66% owned
                            subsidiary of the Company, filed a claim against the
                            ministry of interior of the Republic of Slovakia for
                            the   breach   of  the   delivery   of   technology,
                            co-operation  and  services  agreement.  The Company
                            requests  performance of the agreement.  On November
                            17, 2003,  the  arbitration  procedure was finalized
                            and the  ministry of  interior of Slovakia  has been
                            ordered to pay  Supercom  Slovakia the amount of SKK
                            80,000  (approximately  US$ 2,270 as of December 31,
                            2003)  plus an average  interest  rate of 16.4% from
                            March 1999. In addition,  the Slovakian  ministry of
                            interior  has  been  ordered  to pay  the  costs  of
                            arbitration   in  the  amount   of(euro)42,716   and
                            Supercom   Slovakia's   legal  fees  in  the  amount
                            of(euro)63,611.  The Slovakian  ministry of interior
                            has the  right  to  appeal  in the  Austrian  Courts
                            within  three  months from the date of this award on
                            only legal  procedures.  The  company  has begun the
                            enforcement  procedure  of the  arbitral  award  and
                            correspondingly,   indirectly  received  information
                            that the Slovakian ministry of interior has filed an
                            appeal.


                                       85
<PAGE>
                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 10:-     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

                     2.     On December 12, 1999,  Secu-Systems  filed a lawsuit
                            with the District  Court in  Tel-Aviv-Jaffa  against
                            the Company and InkSure  Ltd. (a former  subsidiary)
                            seeking a  permanent  injunction  and  damages.  The
                            plaintiff  asserted  in its suit  that the  printing
                            method  applied to certain  products  that have been
                            developed  by InkSure Ltd.  constitutes  inter alia:
                            (a)  the  breach  of  a  confidentiality   agreement
                            between the  plaintiff  and the Company;  (b) unjust
                            enrichment  of the  Company  and  InkSure  Ltd;  (c)
                            breach of fiduciary  duties owed to the plaintiff by
                            the  Company  and  InkSure  Ltd.,  and (d) a tort of
                            misappropriation  of trade  secrets  and  damage  to
                            plaintiff's  property.  Secu-Systems,  based on such
                            allegations,  asked the  court to order the  Company
                            and  InkSure  to:  (i)  cease  any  activity   which
                            involves the plaintiff's  confidential  information;
                            (ii) furnish the plaintiff  with a certified  report
                            detailing  all  profits  derived by the  Company and
                            InkSure  Ltd.  from  such  activity;  (iii)  pay the
                            plaintiff an amount equal to all such  profits,  and
                            (iv) pay the  plaintiff  additional  damages  in the
                            amount of NIS 100,000. Alternatively,  the plaintiff
                            asked the court to declare that the  above-mentioned
                            products are owned by the  plaintiff  and InkSure in
                            equal  parts and that the  plaintiff  is entitled to
                            50% of all profits derived therefrom, in which case,
                            the  plaintiffs  asked that the  Company and InkSure
                            allocated  50%  of the  profits  from  the  printing
                            method at issue.

                            Based upon the facts  known to the Company and those
                            provided by InkShure  Ltd. and the  Company's  legal
                            advisors advise which is based, inter-alia,  on said
                            facts,  the  Company's  management is of the opinion
                            that,  the prospects  are  favorable  that the court
                            will not grant  the  permanent  injunction  or award
                            damages of a substantial  amount in connection  with
                            the litigation.  Accordingly,  the management of the
                            Company   did  not   provide   for  such   potential
                            liability.

                     3.     On July 14, 2003, an Israeli agent ("the  claimant")
                            filed  a  lawsuit   with  the   District   Court  in
                            Tel-Aviv-Jaffa  against the Company and its chairman
                            of the Board of Directors;  the claimant claims that
                            the Company  owes him NIS 250,000  (approximately  $
                            54,550) in commissions allegedly due for his part in
                            establishing business connections for the Company in
                            Eastern Asia during the years 1993-1998. The Company
                            plans to contest this claim.

                            The  Company's  management  and its  legal  advisors
                            cannot  assess  at this  stage the  outcome  of this
                            claim.

                     4.     During   March  2004,   the  Company  was   informed
                            indirectly  that the Ministry of Ukraine has filed a
                            claim in order to  declare  the  agreement  that was
                            signed  between the  parties on April 9, 2002,  void
                            due to errors in the tender  procedures  under which
                            the  contract  had been  awarded to the  Company.The
                            Company is currently investigating the claim. During
                            2002,  the Company  began the  delivery of the first
                            phase  pursuant  to  this  agreement  and  generated
                            revenues  of  $2,100.   During  2003,   the  Company
                            generated an aggregate of $ 1,970,  in revenues from
                            this project.

                            The Company's management has decided to increase its
                            allowance  for  doubtful  accounts  in an  aggregate
                            amount of $ 2,133 due to the Ukraine government debt
                            to the Company. In addition, the Company has reduced
                            its obligation to pay commissions to the distributor
                            that mediated this agreement.

                            The Company does not  anticipate  any revenues  from
                            this project during 2004.  The  management  believes
                            that  the  claim  has  no  merits  and   intends  to
                            vigorously defiend the validity of the contract.


                                       86
<PAGE>
                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 11:-      TAXES ON INCOME

              a.     Tax benefits under the Law for the Encouragement of Capital
                     Investments, 1959 ("the law"):

                     The  Company's  production  facilities  have  been  granted
                     status as an  "Approved  Enterprise",  under  the law,  for
                     three  separate  investment  programs that were approved in
                     July 1992, October 1994 and March 1996


                                       87
<PAGE>
                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 11:-     TAXES ON INCOME (CONT.)

                     Since the Company is operating more than one approved
                     enterprise and since the Company is not entitled to tax
                     benefits on part of its taxable income that is taxed at the
                     rate of 36%, under the abovementioned law, its effective
                     tax rate will be the result of a weighted combination of
                     the various applicable rates and tax exemptions. The
                     computation is made in respect of income derived from each
                     project, on the basis of formulas specified by law and
                     approvals.

                     The entitlement to the above benefits is conditional upon
                     the Company fulfilling the conditions stipulated by the
                     above law, regulations published thereunder and the letters
                     of approval for the specific investments in "approved
                     enterprises". In the event of failure to comply with these
                     conditions, the benefits may be canceled and the Company
                     may be required to refund the amount of the benefits, in
                     whole or in part, including interest. As of December 31,
                     2003, management believes that the Company is meeting all
                     of the aforementioned conditions.

                     The tax-exempt profits that will be earned by the Company's
                     "Approved Enterprises" can be distributed to shareholders'
                     without tax liability to the Company only upon the complete
                     liquidation of the Company. If these retained tax-exempt
                     profits are distributed in a manner other than in the
                     complete liquidation of the Company, they would be taxed at
                     the corporate tax rate applicable to such profits as if the
                     Company had not elected the alternative system of benefits
                     (currently 25% for an "Approved Enterprise"). The Company's
                     Board of Directors has determined that such tax-exempt
                     income will not be distributed as dividends.

                     The period of tax benefits, detailed above, is subject to
                     limits of 12 years from the commencement of production, or
                     14 years from the approval date, whichever is earlier.

                     The law also grants entitlement to claim accelerated
                     depreciation on buildings, machinery and equipment used by
                     the "Approved Enterprise", during the first five tax years.

                     Should the Company derive income from sources other than an
                     "Approved Enterprise" during the relevant period of
                     benefits, such income will be taxable at regular corporate
                     tax rate of 36%.

              b.     Tax benefits under the Law for the Encouragement of
                     Industry (Taxation), 1969:

                     The Company is an "industrial company", as defined by this
                     law and, as such, is entitled to certain tax benefits,
                     mainly accelerated depreciation of machinery and equipment,
                     the right to claim public issuance expenses and
                     amortization of patents and other intangible property
                     rights as a deduction for tax purposes.

              c.     Measurement of results for tax purposes under the Income
                     Tax Law (Inflationary Adjustments), 1985.

                     Results for tax purposes are measured in terms of earnings
                     in NIS after certain adjustments for increase in Israel's
                     Consumer Price Index ("CPI"). As explained in Note 2b, the
                     financial statements are measured in U.S. dollars. The
                     difference between the annual change in Israel's CPI and in
                     the NIS/dollar exchange rate causes a further difference
                     between taxable income and the income before taxes shown in
                     the financial statements. In accordance with paragraph 9(f)
                     of SFAS No. 109, the Company has not provided deferred
                     income taxes on this difference between the functional
                     currency and the tax bases of assets and liabilities.


                                       88
<PAGE>
                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 11:-     TAXES ON INCOME (CONT.)

              d.     Israeli tax reform:

                     On January 1, 2003, the Law for Amendment of the Income Tax
                     Ordinance  (Amendment  No.  132)  2002,  known  as the  tax
                     reform,  became effective.  The tax reform changed Israel's
                     tax system from one on a  territorial  basis into that of a
                     personal basis.

                     In  addition,   the  concept  of  a   "controlled   foreign
                     corporation" was introduced,  according to which an Israeli
                     company  may become  subject  to  Israeli  taxes on certain
                     income  of a  non-Israeli  subsidiary  if the  subsidiary's
                     primary  source  of  income  is  passive  income  (such  as
                     interest,  dividends,  royalties,  rental income or capital
                     gains).  The tax  reform  also  substantially  changed  the
                     system of  taxation  of capital  gains.  Management  of the
                     Company  does not expect  that the tax reform will have any
                     significant impact on the Company's activities.

              e.     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:

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                          -------------------
                                                                           2002        2003
                                                                          -------     -------

                     <S>                                                  <C>         <C>
                     Operating loss carryforward                          $ 3,256     $ 2,338
                     Reserves and allowances                                  290         828
                                                                          -------     -------

                     Net deferred tax asset before valuation allowance      3,546       3,166
                     Valuation allowance                                   (3,546)     (3,166)
                                                                          -------     -------

                     Net deferred tax asset                               $    --     $    --
                                                                          =======     =======
                     Deferred income taxes consist of the following:
                       Domestic                                           $ 2,640     $ 2,971
                       Valuation allowance                                 (2,640)     (2,971)
                                                                          -------     -------

                       Foreign                                                906         195
                       Valuation allowance                                   (906)       (195)
                                                                          -------     -------

                                                                          $    --     $    --
                                                                          =======     =======
</TABLE>

                     The Company and its  subsidiaries  have provided  valuation
                     allowances  of $ 3,166 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  have a history of losses the
                     deferred tax assets will not be realized in the foreseeable
                     future.


                                       89
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 11:-     TAXES ON INCOME (CONT.)

              f.     Net operating losses carryforward:

                     Supercom Ltd. has accumulated losses for tax purposes as of
                     December 31, 2003, in the amount of  approximately $ 9,737,
                     which may be carried  forward  and offset  against  taxable
                     income in the future for an indefinite period.

                     Supercom's  subsidiaries  - in the  United  States and Hong
                     Kong,  have  estimated  total  available  carryforward  tax
                     losses  of  $  9  and  $  1,070,  respectively,  which  are
                     available to offset against future taxable income,  if any,
                     in the  future  for an  indefinite  period in Hong Kong and
                     expiring in 2019 in the United States.

                     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.  The annual  limitation  may
                     result in the  expiration  of net  operating  losses before
                     utilization.

              g.     Income (loss) from continuing operations before taxes on
                     income consists of the following:

                                              YEAR ENDED DECEMBER 31,
                                          -------------------------------
                                           2001        2002        2003
                                          -------     -------     -------

                     Domestic             $(3,330)    $ 5,614     $(1,902)
                     Foreign               (1,930)        601         (45)
                                          -------     -------     -------

                                          $(5,260)    $ 6,215     $(1,947)
                                          =======     =======     =======

              h.     Reconciliation of the theoretical tax expense (benefit) to
                     the actual tax expense (benefit):

                     A reconciliation  of theoretical tax expense,  assuming all
                     income is taxed at the  statutory  rate  applicable  to the
                     income of  companies  in Israel  (36% for each of the years
                     ended December 31, 2001, 2002 and 2003, respectively),  and
                     the actual tax expense, is as follows:

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                           ---------------------------------
                                                                            2001         2002         2003
                                                                           -------      -------      -------
                     <S>                                                   <C>          <C>          <C>
                     Income (loss) from continuing operations
                       before taxes on income, as reported in the
                       consolidated statements of operations               $(5,260)     $ 6,215      $(1,947)
                                                                           =======      =======      =======

                     Statutory tax rate in Israel                               36%          36%          36%
                                                                           =======      =======      =======

                     Theoretical tax expenses (benefit)                    $(1,894)     $ 2,237      $  (701)
                     Carryforward losses and other deferred taxes
                       for which a full valuation allowance was
                       recorded                                              1,894       (2,237)         701
                     Taxes due to a subsidiary                                  --           --           --
                                                                           -------      -------      -------
                     Actual income tax                                     $    --      $    --      $    --
                                                                           =======      =======      =======
</TABLE>


                                       90
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 12:-     SHARE CAPITAL

              a.     Shareholders' rights:

                     The  Ordinary  shares  confer upon the holders the right to
                     receive  notice  to  participate  and  vote in the  general
                     meetings  of  the   Company,   and  the  right  to  receive
                     dividends, if declared.

              b.     Stock options:

                     1.     On February 14, 1999, the Board of Directors adopted
                            the 1999 Employee Stock Option Plan that was amended
                            and  restated  in March  2002 (the  "Option  Plan").
                            Under the Option  Plan,  1,000,000  shares have been
                            reserved for issuance.

                            Options become exercisable  ratably over a period of
                            three  to five  years,  commencing  with the date of
                            grant. The options generally expire no later than 10
                            years from the date of grant. Any options, which are
                            forfeited  or  canceled  before  expiration,  become
                            available for future grants.

                            On January 26, 2003, at the general meeting,  it was
                            resolved  to grant an option to acquire up to 50,000
                            shares of the  Company to each of the  directors  of
                            the  Company,  who are not  outside  directors.  The
                            exercise  price under the terms of such options is $
                            0.42 per share.

                            It was also  approved  to grant an option to acquire
                            up to 670,981  shares of the Company (the  "Option")
                            to Mr.  Eli Rozen in lieu of his  rights  due to the
                            termination  of his  employment.  The exercise price
                            under the terms of the Option is $ 0.42 per share.

                            In December 2003, employees of the Company exercised
                            their options into Ordinary shares in  consideration
                            of $ 84.

                            On  November  13,  2003,   the  Board  of  Directors
                            approved  to reprice  136,919  options to two senior
                            employees  from $ 4.02  per  share  to $  0.42,  the
                            options vest over five equal portions each over a 12
                            month  period,  with the first  portion  vesting  on
                            February  2,  1999.  The  employees   exercised  the
                            options and, as a result, the Company did not record
                            any compensation expenses.


                                       91
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 12:-     SHARE CAPITAL (CONT.)

                     2.     A summary of the  Company's  stock option  activity,
                            and related information is as follows:

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31
                                              -------------------------------------------------------------------------------
                                                         2001                       2002                      2003
                                              -----------------------     -----------------------     -----------------------
                                                             WEIGHTED                    WEIGHTED                    WEIGHTED
                                                             AVERAGE                     AVERAGE                     AVERAGE
                                                NUMBER OF    EXERCISE     NUMBER OF      EXERCISE     NUMBER OF      EXERCISE
                                                 OPTIONS       PRICE       OPTIONS         PRICE       OPTIONS         PRICE
                                              ----------     --------     ----------     --------     ----------     --------
                     <S>                        <C>          <C>            <C>          <C>           <C>           <C>
                     Outstanding at              768,410     $    4.3        543,495     $   5.19        880,712     $   2.88
                       beginning of year
                       Granted                    65,000     $   0.42        443,081     $   0.42      1,005,981     $   0.42
                       Exercised                    --       $     --             --     $     --       (200,533)    $   0.42
                       Canceled and
                         forfeited              (289,915)    $   3.36       (105,864)    $   4.41       (151,646)    $   0.72
                                              ----------                  ----------                  ----------
                     Outstanding at end of
                       year                      543,495     $   5.19        880,712     $   2.88      1,534,514     $   1.8
                                              ==========     ========     ==========     ========     ==========     ========
                     Exercisable at end of
                       year                      329,842     $   5.58        478,714     $   4.32      1,082,846     $   1.91
                                              ==========     ========     ==========     ========     ==========     ========
</TABLE>

                            Compensation  expenses  recognized  by  the  Company
                            related  to its  share-based  employee  compensation
                            awards  was $ 66, $ 0 and $ 26 for the  years  ended
                            December 31, 2001, 2002 and 2003, respectively.

                            The options  outstanding  as of December  31,  2003,
                            have been separated into ranges of exercise price as
                            follows:

<TABLE>
<CAPTION>
                                               OPTIONS         WEIGHTED                         OPTIONS
                                             OUTSTANDING       AVERAGE         WEIGHTED        EXERCISABLE        WEIGHTED
                                                AS OF         REMAINING        AVERAGE           AS OF            AVERAGE
                           EXERCISE         DECEMBER 31,     CONTRACTUAL       EXERCISE       DECEMBER 31,        EXERCISE
                            PRICE               2003         LIFE (YEARS)       PRICE             2003             PRICE
                     --------------------  ---------------  --------------  --------------  -----------------  --------------

                       <S>                   <C>                 <C>            <C>            <C>                 <C>
                            $ 0.42           1,303,781           8.95           $  0.42          869,314           $  0.42
                            $ 2.00              15,000           2              $  2.0             9,000           $  2.0
                       $ 4.00 - $ 6.00          18,670           0.5            $  5.09           16,180           $  5.25
                       $ 8.00 - $ 9.60         197,063           0.2            $  8.14          188,352           $  8.52
                                            -----------                                       -----------

                                             1,534,514                          $  1.8         1,082,846           $  1.91
                                            ===========                        ========       ===========         ==========
</TABLE>

              c.     Dividends:

                     In the  event  that  cash  dividends  are  declared  in the
                     future,  such  dividends  will be paid in NIS.  The Company
                     does not intend to pay cash  dividends  in the  foreseeable
                     future.


                                       92
<PAGE>

                                              SUPERCOM LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 13:-     RELATED PARTY TRANSACTIONS

              a.     On October 1, 2001, the Company entered into a consulting
                     agreement with a company owned by the Chairman of the Board
                     of Directors who is one of the co-founders of the Company.

                     In  consideration  of  these  services,   the  Company  has
                     undertaken  to pay $ 10.5  per  month  plus  motor  vehicle
                     expenses.  During 2003, the Company paid $ 126, pursuant to
                     this agreement.

              b.     On October 1, 2001,  the Company  entered into a consulting
                     agreement with a company owned by a member of the Company's
                     Board of Directors,  one of the Company's co-founders and a
                     principal shareholder.

                     In  consideration  of  these  services,   the  Company  has
                     undertaken  to  pay $ 4.6  per  month  plus  motor  vehicle
                     expenses.  During 2003, the Company paid $ 55,  pursuant to
                     this agreement.

              c.     On October 1, 2001, the Company entered into a consulting
                     agreement with a company owned by one of the co-founders of
                     the Company.

                     In  consideration  for  these  services,  the  Company  has
                     undertaken  to  pay $ 4.6  per  month  plus  motor  vehicle
                     expenses.  During 2003, the Company paid $ 55,  pursuant to
                     this agreement.

              d.     On September 1, 2001, the Company entered into an agreement
                     with its 40% affiliate, pursuant to which the Company
                     agreed to sub-lease office space in the Raanana, Israel
                     facility to CT Card Tech and to provide CT Card Tech with
                     certain additional services in consideration of a monthly
                     payment of $ 1. In November 2003, CT Card Tech surrendered
                     a portion of its office space, which reduced the monthly
                     payment to $ 0.5.

              e.     On March 7, 2000, the Company entered into an agreement
                     with IFTIC Ltd., a company registered in Israel and
                     wholly-owned by a member of the Company's Board of
                     Directors. Under the terms of the agreement, IFTIC provides
                     the Company with market promotion and management services
                     for a minimum fee of $ 2.5 per month for the first 10 hours
                     and an additional fee of 1.5% of sales initiated from new
                     customers first introduced by the member of the Board. The
                     Company paid IFTIC approximately $ 17 in 2003.

              f.     During 2002, Avi Landman, one of the Company's co-founders,
                     received  $152,442 as back  compensation in connection with
                     salary and social  benefits  for the period he served as an
                     employee  in  connection   with  the   termination  of  his
                     employment agreement.


                                       93
<PAGE>

NOTE 14:-     SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION

              a.     Summary information about geographic areas:

                     The  Company  manages  its  business  on the  basis  of one
                     reportable  segment (see Note 1 for a brief  description of
                     the  Company's  business) and follows the  requirements  of
                     SFAS 131,  "Disclosures About Segments of an Enterprise and
                     Related Information".

                     The following is a summary of operations  within geographic
                     areas, based on the location of its customers:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                        ----------------------------------------------------------------------------------
                                                   2001                         2002                         2003
                                        --------------------------   -------------------------   -------------------------
                                            TOTAL      LONG-LIVED       TOTAL      LONG-LIVED       TOTAL      LONG-LIVED
                                          REVENUES       ASSETS       REVENUES       ASSETS       REVENUES       ASSETS
                                         ----------   ------------   ----------   ------------   ----------   ------------

                     <S>                   <C>           <C>           <C>           <C>           <C>           <C>
                     Ukraine               $   --        $   --        $2,120        $   --        $1,970        $   --
                     Moldova                1,075            --         1,554            --         1,184            --
                     Eastern Europe           674            --             6            --            --            --
                     Hong-Kong              2,212           144         1,942            58         2,067            28
                     England                  213            --           285            --           154            --
                     Israel                   327         1,493           229         1,822           460         1,647
                     Turkey                    --            --         1,272            --            --            --
                     United States          2,241           120           581            --           828             1
                     Africa                    --            --            --            --           536            --
                     Other                    147           106            38            --            45            --
                                           ------        ------        ------        ------        ------        ------

                                           $6,889        $1,863        $8,027        $1,880        $7,244        $1,676
                                           ======        ======        ======        ======        ======        ======
</TABLE>

              b.     Summary of operations based on products and services:

                                                        YEAR ENDED DECEMBER 31,
                                                      --------------------------
                                                       2001      2002      2003
                                                      ------    ------    ------

                     SPPL 1000                        $4,606    $2,080    $  551
                     Raw materials and equipment          --     4,879     6,116
                     License fee                       1,667       446        --
                     Maintenance                         616       622       577
                                                      ------    ------    ------

                                                      $6,889    $8,027    $7,244
                                                      ======    ======    ======


                                       94
<PAGE>

NOTE 14:-     SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.)

              c.     Major customers data as a percentage of total sales:

                                               YEAR ENDED DECEMBER 31,
                                      ------------------------------------------
                                         2001           2002           2003
                                      ------------   ------------   ------------

                     Customer A            --             26%            27%
                                      ============   ============   ============
                     Customer B            16%            19%            16%
                                      ============   ============   ============
                     Customer C            --             16%            --
                                      ============   ============   ============
                     Customer D            17%            12%            12%
                                      ============   ============   ============
                     Customer E            --          *) --             11%
                                      ============   ============   ============
                     Customer F            23%         *) --             --
                                      ============   ============   ============
                     Customer G            14%            --             --
                                      ============   ============   ============

                     *) Less than 10%.

NOTE 15:-     FINANCIAL INCOME (EXPENSES), NET

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                            2001          2002          2003
                                                            -----         -----         -----
                     Financial expenses:

                     <S>                                    <C>           <C>           <C>
                     Interest, bank charges and fees        $(116)        $(119)        $(207)
                     Foreign currency translation              --            --           (98)
                                                            -----         -----         -----

                                                             (116)         (119)         (305)
                                                            -----         -----         -----
                     Financial income:

                     Foreign currency translation             108            50            --
                     Interest                                 131            34            72
                                                            -----         -----         -----

                                                              239            84            72
                                                            -----         -----         -----

                                                            $ 123         $ (35)        $(233)
                                                            =====         =====         =====
</TABLE>


                                       95
<PAGE>

NOTE 16:-     OTHER INCOME (EXPENSES), NET

<TABLE>
<CAPTION>
                     <S>                                                           <C>             <C>             <C>
                     Loss on sale of property and equipment, net                   $  (511)        $  (209)        $    (5)
                     Decline in market value of held-to-maturity securities             --              --             (52)
                     Gain on sale of subsidiary's shares                               250           1,936              --
                     Gain on sale of a subsidiary                                       --           2,685              --
                     Gain on issuance of subsidiary's shares                            --           1,802              --
                     Other                                                              20             (11)            (26)
                                                                                   -------         -------         -------

                                                                                   $  (241)        $ 6,203         $   (83)
                                                                                   =======         =======         =======
</TABLE>


NOTE 17:-     SIGNIFICANT EVENTS

              a.     On May 6, 2003, the Company  announced that it had executed
                     a letter of intent which sets forth the  preliminary  terms
                     and conditions of a proposed merger between the Company and
                     PerfectData Corporation. In connection with the merger, the
                     shareholders  of the Company were to exchange  their shares
                     in the Company for shares of Common stock of PerfectData.

                     On  October  24,  2003,  Perfect  Data has  filed  with the
                     Securities  and  Exchange   Commission   its   Registration
                     Statement on Form S-4 regarding the proposed merger between
                     the Company and Perfect Data.

                     On January 20, 2004, the Company and Perfect Data announced
                     that their merger  agreement  and related  agreements  have
                     been terminated according to the terms of the agreements.

              b.     On October 23, 2003, the Company transferred the listing of
                     its Ordinary  shares to the  Euronext  Brussels New Market,
                     under the symbol SUP and has requested  the delisting  from
                     NASDAQ Europe  following the  announcement by NASDAQ Europe
                     that it will be discontinuing  its operations by the end of
                     November  2003.  The delisting was effected at the close of
                     business on November 27, 2003.

                              - - - - - - - - - - -


                                       96
<PAGE>

AUDITORS

THE  CONSOLIDATED  FINANCIAL  STATEMENTS  OF THE  COMPANY,  INCLUDING  THE NOTES
THERETO,  AS OF AND FOR THE  YEARS  ENDED 31  DECEMBER,  2001,  2002  AND  2003,
INCLUDED IN ITEM 18 OF THIS REGISTRATION  FORM, HAVE BEEN PREPARED IN ACCORDANCE
WITH U.S. GAAP AND HAVE BEEN AUDITED BY KOST, FORER GABBAY & KASIERER,  A MEMBER
OF ERNST & YOUNG GLOBAL,  INDEPENDENT PUBLIC ACCOUNTANTS,  LOCATED AT 3 AMINADAV
STREET,  TEL AVIV,  ISRAEL.  THE  CONSOLIDATED  FINANCIAL  STATEMENTS  HAVE BEEN
INCLUDED IN THIS ANNUAL REPORT IN RELIANCE UPON THE REPORT OF KOST, FORER GABBAY
&  KASIERER,  GIVEN ON THE  AUTHORITY  OF THAT FIRM AS EXPERTS IN  AUDITING  AND
ACCOUNTING.

DIRECTORS & SENIOR EXECUTIVES OF THE ISSUER


                                       97
<PAGE>

ITEM 19.  EXHIBITS.

1.1     Memorandum of Association.

1.2     Articles of Association.

1.3     Amendment to Articles of Association.

2.1     Forms of Stock Certificates Representing Ordinary Shares.

4.1     The SuperCom Ltd. 1999 Employee Stock Option Plan (As Amended and
        Restated in 2002).

4.2     Service Agreement between SuperCom and Avi Schechter, dated July 1,
        2002.

4.3     Employment Agreement between SuperCom and Eyal Tuchman, dated July 1,
        2002.

4.4     Employment Agreement between SuperCom and Eli Basson, dated July 28,
        1997.

4.5     Service Agreement between SuperCom and Eli Rozen, dated October 1, 2001.

4.6     Service Agreement between SuperCom and Avi Landman, dated October 1,
        2001.

8.1     List of Subsidiaries.

        The following are the principal subsidiary entities of SuperCom Ltd.
        (all wholly-owned except as indicated):

    o   SuperCom, Inc. (United States)
    o   SuperCom Asia Pacific Ltd. (Hong Kong)
    o   SuperCom Slovakia A.S. (Slovakia) (owned 66% by SuperCom Ltd.)
    o   CT CardTech Technologies (1994) Ltd. (Israel) (owned 40% by SuperCom
        Ltd.)

14.1    Consent of Kost, Forer, Gabbay & Kasierer, a Member of Ernst & Young
        Global, independent public accountants.

14.2    Consent of BDO McCabe Lo & Company, independent public accountants

14.3    Schedule II of Valuation and Qualifying Accounts

-----------------


                                       98
<PAGE>

                                    SIGNATURE

         The registrant  hereby  certifies that it meets all of the requirements
for  filing  on Form  20-F  and  that it has  duly  caused  and  authorized  the
undersigned to sign this registration statement on its behalf.


                                  SUPERCOM LTD.

                                                     /s/  Avi Schechter
                                                     ----------------------
                                                     By:  Avi Schechter
                                                     Its: President

Date:  June 4, 2004


                                       99
<PAGE>

                                  EXHIBIT INDEX

1.1     Memorandum of Association.

1.2     Articles of Association.

1.3     Amendment to Articles of Association.

2.1     Forms of Stock Certificates Representing Ordinary Shares.

4.1     The SuperCom Ltd. 1999 Employee Stock Option Plan (As Amended and
        Restated in 2002).

4.2     Employment Agreement between SuperCom and Avi Schechter, dated July 1,
        2002.

4.3     Employment Agreement between SuperCom and Eyal Tuchman, dated July 1,
        2002.

4.4     Employment Agreement between SuperCom and Eli Basson, dated July 28,
        1997.

4.5     Service Agreement between SuperCom and Eli Rozen, dated October 1, 2001.

4.6     Service Agreement between SuperCom and Avi Landman, dated October 1,
        2001.

8.1     List of Subsidiaries.

        The following are the principal subsidiary entities of SuperCom Ltd.
        (all wholly-owned except as indicated):

    o   SuperCom, Inc. (United States)
    o   SuperCom Asia Pacific Ltd. (Hong Kong)
    o   SuperCom Slovakia A.S. (Slovakia) (owned 66% by SuperCom Ltd.)
    o   CT CardTech Technologies (1994) Ltd. (Israel) (owned 40% by SuperCom
        Ltd.)

14.1    Consent of Kost, Forer, Gabbay & Kasierer, a Member of Ernst & Young
        Global, independent public accountants.

14.2    Consent of BDO McCabe Lo & Company, independent public accountants

14.3    Schedule of Valuation and Qualifying Accounts

-----------------

</TEXT>
</DOCUMENT>
