-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 RsqverWL+yVL+qhUyBqv3BFuHg9FItbT8+KTya5fRVJpiEKfmVqJ8ZRXArNJB0Yi
 qQv2F+1jTCwolI9ziKAdMA==

<SEC-DOCUMENT>0000930413-04-002806.txt : 20040607
<SEC-HEADER>0000930413-04-002806.hdr.sgml : 20040607
<ACCEPTANCE-DATETIME>20040607153226
ACCESSION NUMBER:		0000930413-04-002806
CONFORMED SUBMISSION TYPE:	20FR12G
PUBLIC DOCUMENT COUNT:		14
FILED AS OF DATE:		20040607

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SuperCom Ltd.
		CENTRAL INDEX KEY:			0001291855
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			L3
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		20FR12G
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-50790
		FILM NUMBER:		04851894

	BUSINESS ADDRESS:	
		STREET 1:		PO BOX 2094
		CITY:			RA'ANANA
		STATE:			L3
		ZIP:			43665
		BUSINESS PHONE:		972-9-775-0800

	MAIL ADDRESS:	
		STREET 1:		PO BOX 2094
		CITY:			RA'ANANA
		STATE:			L3
		ZIP:			43665
</SEC-HEADER>
<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
                              ===============    ===============================


                                       24
<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>
<DOCUMENT>
<TYPE>EX-1.1
<SEQUENCE>2
<FILENAME>c32537_ex1-1.txt
<TEXT>
                            MEMORANDUM OF ASSOCIATION

1.   Company name: SuperCom Ltd.

2.   Objectives for which the company was established:

     a.   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.

     b.   Consultation in the above fields.

     c.   Development, manufacture, implementation and marketing of any product
          based on the knowledge and expertise of the parties.

     d.   Purchase, sale, import, export and implementation of any action
          required to realize the above objectives.

3.   The liability of the members is limited.

4.   The company's share capital is NIS 10,000, divided into 9,000 ordinary
     shares of NIS 1 each and 100 management shares of NIS 10 each.

We, the undersigned, wish to incorporate as a company in accordance with this
Memorandum of Association and each of us agrees to take the number of shares of
the company's capital recorded alongside his name.

Names of signatories (ID, address, title)      No. shares taken        Signature
- ----------------------------------------       -------------------     ---------
Electrocard 1983    65 Jabotinsky St., Tel     50 ordinary shares         (-)
Ltd. 510975600      Aviv                       3 management shares

Florian Klinger     51 Haoren St.,             25 ordinary shares         (-)
ID 0141295          Yavne                      1 management share

Avi Landman         5 Hahistadrut St.,         25 ordinary shares         (-)
ID 6715176          Kiryat Yam                 1 management share

Date: July 4 1988/88    I hereby confirm that the above-signed are authorized to
                        make a commitment on behalf of the company in whose
                        name they have signed BEFORE ME

[(39) Memorandum]
                                                     (-)
        [two stamps]                      [stamp] Ministry of Justice
                                                Approved copy
                                             Companies Registrar

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1.2
<SEQUENCE>3
<FILENAME>c32537_ex1-2.txt
<TEXT>
                             THE COMPANIES ORDINANCE

                           A COMPANY LIMITED BY SHARES

                             ARTICLES OF ASSOCIATION

                                       OF

                                  SUPERCOM. Ltd

                                   PRELIMINARY

1.       SECOND SCHEDULE EXCLUDED

         The  regulations  contained  in the second  schedule  to the  Companies
         Ordinance [New Version],  5743-1983 (the "Companies  Ordinance")  shall
         not apply to the Company.

2.       DEFINITIONS

         In these  Articles the words  standing in the first column of the table
         next hereinafter  contained shall bear the meaning set opposite to them
         respectively in the second column thereof, if not inconsistent with the
         subject or context.

         The "Company" -    the aforementioned company.

         The "Statutes"  -  the  Companies  Ordinance  and every  other  Israeli
                            statute  in  force  from  time  to  time  concerning
                            companies   limited  by  shares  and  affecting  the
                            Company.

         These "Articles" - these Articles of Association as originally  drafted
                            or  as   amended   from  time  to  time  by  Special
                            Resolution.

         The "Office" -     the current registered office of the Company.

         "Year" and
         "Month" -          a Gregorian year or month.

         The "Market
         Authority"  -      The body within EASDAQ that is  responsible  for the
                            transparency, integrity and security of EASDAQ.
<PAGE>

                                       2


3.       INTERPRETATION

         Unless  the  subject  or the  context  otherwise  requires:  words  and
         expressions  defined in the  Companies  Ordinance  in force on the date
         when these Articles or any amendment thereto, as the case may be, first
         become  effective  shall  have  the same  meanings  herein;  words  and
         expressions  importing  the singular  shall include the plural and vice
         versa;  words and  expressions  importing  the  masculine  gender shall
         include the feminine; and words and expressions importing persons shall
         include bodies corporate.

                                  SHARE CAPITAL

4.       SHARE CAPITAL

         (a)      The  authorized  share  capital of the  Company is NIS 265,000
                  (two hundred  sixty five  thousand)  divided  into  26,500,000
                  (twenty six million five hundred  thousand)  Ordinary  Shares,
                  nominal value NIS 0.01 each.

         (b)      The Ordinary Shares all rank pari passu.

5.       INCREASE OF AUTHORIZED SHARE CAPITAL

         (a)      The Company  may,  from time to time,  by Special  Resolution,
                  whether  or not all  the  shares  then  authorized  have  been
                  issued,  and whether or not all the shares  theretofore issued
                  have been called up for payment, increase its authorized share
                  capital.  Any such increase  shall be in such amount and shall
                  be  divided  into  shares of such  nominal  amounts,  and such
                  shares shall confer such rights and preferences,  and shall be
                  subject to such restrictions, as such Special Resolution shall
                  provide.

         (b)      Except  to the  extent  otherwise  provided  in  such  Special
                  Resolution,  any new shares  included in the authorized  share
                  capital  increased  as  aforesaid  shall be subject to all the
                  provisions of these Articles which are applicable to shares of
                  such class  included in the  existing  share  capital  without
                  regard to class (and, if such new shares are of the same class
                  as a class of shares  included in the existing  share capital,
                  to all of the  provisions  which are  applicable  to shares of
                  such class included in the existing share capital).

6.       SPECIAL RIGHTS: MODIFICATION OF RIGHTS

         (a)      Subject to the  provisions of the Memorandum of Association of
                  the  Company,  and without  prejudice  to any  special  rights
                  previously  conferred  upon the holders of existing  shares in
                  the Company,  the Company may,  from time to time,  by Special
                  Resolution, provide for shares with such preferred or deferred
                  rights or rights of redemption or other special  rights and/or
                  such  restrictions,  whether in regard to



<PAGE>
                                       3


                  dividends,  voting,  repayments of share capital or otherwise,
                  as may be stipulated in such Special Resolution.

         (b)      (i)      If at any time the  share  capital  is  divided  into
                           different  classes of shares,  the rights attached to
                           any  class,   unless  otherwise   provided  by  these
                           Articles,   may  be  modified  or  abrogated  by  the
                           Company,  by  Special  Resolution,   subject  to  the
                           consent  in writing  of the  holders of  seventy-five
                           percent  (75%) of the issued  shares of such class or
                           the  sanction  of a  Special  Resolution  passed at a
                           separate General Meeting of the holders of the shares
                           of such class.

                  (ii)     The provisions of these Articles  relating to General
                           Meetings  shall,  mutatis  mutandis,   apply  to  any
                           separate General Meeting of the holders of the shares
                           of a particular class,  provided,  however,  that the
                           requisite  quorum  at any  separate  General  Meeting
                           referred  to in  clause  (i)  shall  be two  or  more
                           members  present in person or proxy and  holding  not
                           less than  seventy-five  per cent (75%) of the issued
                           shares of such class, provided that if within half an
                           hour  from  the  time   appointed  for  such  General
                           Meeting, a quorum is not present,  then Article 26(c)
                           hereof shall apply.

                  (iii)    Unless  otherwise  provided  by these  Articles,  the
                           enlargement of an authorized class of shares,  or the
                           issuance  of  additional  shares  thereof  out of the
                           authorized and unissued  share capital,  shall not be
                           deemed, for purposes of this Article 6 (b), to modify
                           or abrogate the rights attached to previously  issued
                           shares of such class or of any other class.

7.       CONSOLIDATION, SUBDIVISION, CANCELLATION AND REDUCTION OF SHARE CAPITAL

         (a)      The  Company  may,  from time to time,  by Special  Resolution
                  (subject,  however,  to the  provisions of Article6 (b) hereof
                  and to applicable law):

                  (i)      consolidate  and divide all or any part of its issued
                           or unissued authorized share capital into shares of a
                           per share  nominal value which is larger than the per
                           share nominal value of its existing shares;

                  (ii)     subdivide  its shares  (issued or unissued) or any of
                           them,  into shares of smaller  nominal  value than is
                           fixed  by the  Memorandum  of  Association  (subject,
                           however,  to the  provisions of Section 144(4) of the
                           Companies Ordinance);

                  (iii)    cancel any shares which,  at the date of the adoption
                           of such  Special  Resolution,  have not been taken


<PAGE>
                                       4


                           or agreed to be taken by any person, and diminish the
                           amount  of its  share  capital  by the  amount of the
                           shares so canceled; or,

                  (iv)     reduce its share  capital in any manner  permitted by
                           law.

         (b)      With respect to any consolidation of issued shares into shares
                  of a larger  nominal value per share,  and with respect to any
                  other action which may result in fractional  shares, the Board
                  of Directors  may settle any  difficulty  which may arise with
                  regard thereto,  as its deems fit, and, in connection with any
                  such  consolidation  or other  action  which  could  result in
                  fractional shares, may, without limiting its aforesaid power:

                  (i)      determine,   as  to   the   holder   of   shares   so
                           consolidated,    which   issued   shares   shall   be
                           consolidated  into a share of a larger  nominal value
                           per share;

                  (ii)     allot,  in  contemplation  of or  subsequent  to such
                           consolidation  or other action,  shares or fractional
                           shares  sufficient  to preclude or remove  fractional
                           share holdings;

                  (iii)    redeem, in the case of redeemable  preference shares,
                           and  subject  to  applicable   law,  such  shares  or
                           fractional  shares  sufficient  to preclude or remove
                           fractional share holdings;

                  (iv)     cause the  transfer of  fractional  shares by certain
                           shareholders  of the  Company  to other  shareholders
                           thereof so as to most expediently  preclude or remove
                           any   fractional   shareholdings,   and   cause   the
                           transferees  of  such  fractional  shares  to pay the
                           transferors  thereof the fair value thereof,  and the
                           Board of  Directors  is hereby  authorized  to act in
                           connection  with  such  transfer  as  agent  for  the
                           transferors  and  transferees of any such  fractional
                           shares,  with  full  power of  substitution,  for the
                           purposes  of  implementing  the  provisions  of  this
                           sub-Article 7(b)(iv).

                                     SHARES

8.       REGISTERED HOLDER

         Except as otherwise  provided in these  Articles,  the Company shall be
         entitled to treat the  registered  holder of each share as the absolute
         owner  thereof,  and,  accordingly,  shall not,  except as ordered by a
         court  of  competent  jurisdiction,  or  as  required  by  statute,  be
         obligated to recognize any equitable or other claim to, or interest in,
         such share on the part of any other person.

9.       ALLOTMENT OF SHARES

         The unissued shares from time to time shall be under the control of the
         Board of  Directors,  who  shall  have the  power  to  allot,  issue or
         otherwise  dispose  of


<PAGE>
                                       5


         shares to such persons, on such terms and conditions (including,  inter
         alia,  terms  relating to calls as set forth in Article 11(f)  hereof),
         and either at par or at a premium, or, subject to the provisions of the
         Companies  Ordinance,  at a discount and/or with payment of commission,
         and at such times,  as the Board of Directors  deems fit, and the power
         to give any person the option to acquire  from the  Company any shares,
         either at par or at a premium or,  subject as aforesaid,  at a discount
         and/or  with  payment  of  commission,  during  such  time and for such
         consideration as the Board of Directors deems fit.

10.      PAYMENT IN INSTALLMENTS

         If pursuant to the terms of allotment or issue of any share, all or any
         portion of the price  thereof shall be payable in  installments,  every
         such  installment  shall be paid to the Company on the due date thereof
         by the then  registered  holder(s) of the share or the  person(s)  then
         entitled thereof.

11.      BEARER SHARES

         (a)      The Company may,  regarding  each fully paid-up  share,  Issue
                  abearer share  certificate;  and,  accordingly,  the Directors
                  may,  after  the  registered  Shareholder  of the said  shares
                  presents  a  written  application  and all  required  proof of
                  identity of the person  making the request,  and after receipt
                  of the bearer share certificate (if issued), together with the
                  required stamp duties for a bearer share certificate,  issue a
                  stamped  bearer share  certificate,  with the  Company's  seal
                  and/or stamp and bearing the necessary stamps required by law,
                  in recognition that the said bearer holds the shares mentioned
                  therein.

         (b)      A bearer share certificate  provides its holder with the right
                  to the  shares  stated  therein.  The  said  shares  shall  be
                  transferable   by  means  of  transfer  of  the  bearer  share
                  certificate from one person to another.  The provisions of the
                  Company's Articles of Association  concerning the transfer and
                  delivery of shares will not apply to the shares  listed in the
                  bearer share certificate.

         (c)      The Directors may determine the manner of payment of dividends
                  regarding bearer shares;  and they may determine the procedure
                  governing  the  issuance of new bearer share  certificates  to
                  replace any that were destroyed, defaced, lost or spoiled. The
                  Directors  shall be entitled,  upon request by the holder of a
                  bearer  shares  and upon his  submission  to the  Company of a
                  bearer share certificate for its cancellation, to register his
                  name as a Member in the  Register  of Members,  regarding  the
                  shares listed in the bearer share certificate.

         (d)      The holder of a bearer  share shall be entitled to deposit the
                  certificate in the office of the Company or in a bank. So long
                  as the certificate is deposited in the foregoing  manner,  the
                  depositor will retain the right to participate and vote in any
                  meeting  conducted,  upon two days after said deposit,  and to
                  execute any other right granted to a Shareholder  as


<PAGE>
                                       6


                  stated  in these  Articles,  as if he were  registered  in the
                  Register as the holder of the share indicated in the deposited
                  certificate.  In the  event of  deposit  of the  bearer  share
                  certified  in  the  bank.   The   shareholder   shall  present
                  confirmation  that  the  certificate  was  in  fact  deposited
                  therein.  No more than one  person  shall be  recognized  as a
                  depositor  of a  bearer  share  certificate.  Subject  to  the
                  aforementioned,  the holder of a bearer share certificate will
                  not be  entitled  to  appear  or to vote in a  meeting  of the
                  Company, or to receive notices from same.

12.      CALLS ON SHARES

         (a)      The Board of Directors  may,  from time to time, as it, in its
                  discretion,  deems fit, make calls for payment upon members in
                  respect  of any sum which has not been paid up in  respect  of
                  shares held by such members and which is not,  pursuant to the
                  terms  of  allotment  or issue of such  shares  or  otherwise,
                  payable at a fixed time,  and each member shall pay the amount
                  of  every  call  so made  upon  him  (and of each  installment
                  thereof  if the  same  is  payable  in  installments),  to the
                  Company at the time(s) and place(s) designated by the Board of
                  Directors,  as any such  time(s)  may be  thereafter  extended
                  and/or such place(s) changed.  Unless otherwise  stipulated in
                  the  resolution  of the Board of Directors  (and in the notice
                  hereafter  referred  to),  each  payment in response to a call
                  shall be deemed to constitute a pro rata payment on account of
                  all the shares in respect of which such call was made.

         (b)      Notice of any call for  payment by a member  shall be given in
                  writing to such member not less than  fourteen (14) days prior
                  to the time of payment fixed in such notice, and shall specify
                  the time and place of payment.  Prior to the time for any such
                  payment  fixed in a notice of a call  given to a  member,  the
                  Board of Directors may in its absolute  discretion,  by notice
                  in writing  to such  member,  revoke  such call in whole or in
                  part, extend the time fixed for payment thereof,  or designate
                  a different  place of payment.  In the event of a call payable
                  in installments, only one notice thereof need be given.

         (c)      If pursuant to the terms of  allotment  or issue of a share or
                  otherwise,  an amount is made payable at a fixed time (whether
                  on account of such share or by way of  premium),  such  amount
                  shall be payable at such time as if it were  payable by virtue
                  of a call made by the Board of Directors  and for which notice
                  was given in  accordance  with  paragraph  (a) and (b) of this
                  Article 11, and the  provisions of these  Articles with regard
                  to calls (and the non-payment  thereof) shall be applicable to
                  such amount (and the non-payment thereof).

         (d)      Joint holders of a share shall be jointly and severally liable
                  to pay all calls for  payment in respect of such share and all
                  interest payable thereon.
<PAGE>
                                       7

         (e)      +Any  amount  called for  payment  which is not paid when due,
                  shall  bear  interest  from the date fixed for  payment  until
                  actual payment  thereof,  at such rate (not exceeding the then
                  prevailing  debitory rate charged by leading  commercial banks
                  in  Israel),  and  payable  at such  time(s)  as the  Board of
                  Directors may prescribe.

         (f)      Upon the  allotment  of  shares,  the Board of  Directors  may
                  provide for differences  among the allottees of such shares as
                  to the  amounts  and times for payment of calls for payment in
                  respect of such shares.

13.      PREPAYMENT

         With the approval of the Board of Directors,  any member may pay to the
         Company any amount not yet  payable in respect of his  shares,  and the
         Board of  Directors  may approve the payment by the Company of interest
         on any such  amount  until the same would be payable if it had not been
         paid in  advance,  at such rate and  time(s) as may be  approved by the
         Board of  Directors.  The Board of Directors  may at any time cause the
         Company  to repay  all or any part of the  money so  advanced,  without
         premium or penalty.  Nothing in this Article 13 shall derogate from the
         right of the Board of Directors to make any call for payment  before or
         after receipt by the Company of any such advance.

14.      FORFEITURE AND SURRENDER

         (a)      If any  member  fails to pay an amount  payable by virtue of a
                  call,  or  interest  thereon  as  provided  for in  accordance
                  herewith,  on or before the day fixed for payment of the same,
                  the Board of  Directors  may,  at any time after the day fixed
                  for  such  payment,  so long as such  amount  (or any  portion
                  thereof) or interest  thereon (or any portion thereof) remains
                  unpaid,  forfeit  all or any of the shares in respect of which
                  such  payment was called  for.  All  expenses  incurred by the
                  Company in  attempting  to collect any such amount or interest
                  thereon,  including,  without limitation,  attorney's fees and
                  costs of legal proceedings,  shall be added to, and shall, for
                  all  purposes  (including  the accrual of  interest  thereon),
                  constitute  a part of,  the amount  payable to the  Company in
                  respect of such call.

         (b)      Upon the adoption of a resolution  as to the  forfeiture  of a
                  member's  share,  the Board of  Directors  shall cause  notice
                  thereof to be given to such  member,  which notice shall state
                  that,  in the event of the failure to pay the entire amount so
                  payable by a date specified in the notice (which date shall be
                  not less than fourteen (14) days after the date such notice is
                  given,  and which may be extended by the Board of  Directors),
                  such shares shall be ipso facto forfeited,  provided, however,
                  that,  prior to such date,  the Board of Directors may nullify
                  such resolution of forfeiture, but no such nullification shall
                  estop  the  Board  of  Directors   from   adopting  a  further
                  resolution of forfeiture in respect of the  non-payment of the
                  same amount.


<PAGE>
                                       8


         (c)      Without  derogating  from Articles 54 and 59 hereof,  whenever
                  shares are forfeited as herein  provided,  all  dividends,  if
                  any,  theretofore declared in respect thereof and not actually
                  paid, shall be deemed to have been forfeited at the same time.

         (d)      The Company,  by  resolution  of the Board of  Directors,  may
                  accept the voluntary surrender of any share.

         (e)      Any share  forfeited or surrendered  as provided  herein shall
                  become the property of the Company,  and the same,  subject to
                  the provisions of these Articles,  may be sold, re-allotted or
                  otherwise disposed of as the Board of Directors deems fit.

         (f)      Any member  whose shares have been  forfeited  or  surrendered
                  shall  cease to be a member in  respect  of the  forfeited  or
                  surrendered shares, but shall,  notwithstanding,  be liable to
                  pay,  and shall  forthwith  pay,  to the  Company,  all calls,
                  interest and expenses  owing upon or in respect of such shares
                  at the time of forfeiture or surrender, together with interest
                  thereon from the time of forfeiture or surrender  until actual
                  payment,  at the rate  prescribed in Article 11(e) above,  and
                  the Board of Directors, in its discretion,  may, but shall not
                  be obligated  to,  enforce the payment of such moneys,  or any
                  part  thereof.  In the event of such  forfeiture or surrender,
                  the Company,  by  resolution  of the Board of  Directors,  may
                  accelerate  the date(s) of payment of any or all amounts  then
                  owing to the  Company by the member in  question  (but not yet
                  due) in respect of all shares owned by such member,  solely or
                  jointly with  another.  (g) The Board of Directors  may at any
                  time,  before any share so forfeited or surrendered shall have
                  been sold,  re-allotted or otherwise  disposed of, nullify the
                  forfeiture  or surrender on such  conditions  as it deems fit,
                  but no such  nullification  shall estop the Board of Directors
                  from  re-exercising its powers of forfeiture  pursuant to this
                  Article 14.

15.      LIEN

         (a)      Except to the extent the same may be waived or subordinated in
                  writing,  the Company  shall have a first and  paramount  lien
                  upon all the  shares  registered  in the  name of each  member
                  (without regard to any equitable or other claim or interest in
                  such  shares  on the part of any other  person),  and upon the
                  proceeds of the sale thereof,  for his debts,  liabilities and
                  engagements to the Company  arising from any amount payable by
                  such  member in respect of any  unpaid or partly  paid  share,
                  whether or not such debt, liability or engagement has matured.
                  Such  lien  shall  extend to all  dividends  from time to time
                  declared  or paid in respect of such share.  Unless  otherwise
                  provided,  the  registration  by the  Company of a transfer of
                  shares  shall  be  deemed  to be a  waiver  on the part of the
                  Company  of  the  lien  (if  any)   existing  on  such  shares
                  immediately prior to such transfer.


<PAGE>
                                       9


         (b)      The Board of  Directors  may cause the Company to sell a share
                  subject to such a lien when the debt,  liability or engagement
                  giving  rise to such lien has  matured,  in such manner as the
                  Board of  Directors  deems fit, but no such sale shall be made
                  unless  such  debt,  liability  or  engagement  has  not  been
                  satisfied  within  fourteen (14) days after written  notice of
                  the  intention  to sell shall have been served on such member,
                  his executors or administrators.

         (c)      The net proceeds of any such sale,  after payment of the costs
                  thereof,  shall be  applied in or toward  satisfaction  of the
                  debts, liabilities or engagements of such member in respect of
                  such share  (whether  or not the same have  matured),  and the
                  residue (if any) shall be paid to the member,  his  executors,
                  administrators or assigns.

16.      SALE AFTER FORFEITURE OR SURRENDER OR IN ENFORCEMENT OF LIEN

         Upon any sale of a share after forfeiture or surrender or for enforcing
         a lien,  the Board of  Directors  may  appoint any person to execute an
         instrument  of transfer of the share so sold and cause the  purchaser's
         name to be entered in the Register of Members in respect of such share.
         The purchaser  shall be registered as the  shareholder and shall not be
         required  to  verify  the  regularity  of the sale  proceedings  or the
         application  of the proceeds of such sale,  and after his name has been
         entered in the  Register  of Members  in  respect  of such  share,  the
         validity  of the sale shall not be  impeached  by any  person,  and the
         remedy of any person aggrieved by the sale shall be in damages only and
         against the Company exclusively.

17.      REDEEMABLE SHARES

         The Company may, subject to applicable law, issue redeemable shares and
         redeem the same.

                               TRANSFER OF SHARES

18.      REGISTRATION OF TRANSFER

         (a)      The Shares of the  Company  are  transferable.  No transfer of
                  shares  shall  be  registered   unless  a  proper  writing  or
                  instrument  of  transfer  (in  the  customary  form  described
                  hereunder  or any  other  form  satisfactory  to the  Board of
                  Directors)  has been submitted to the Company (or its transfer
                  agent),  together  with such  other  evidence  of title as the
                  Board of Directors may reasonably require.  The share transfer
                  deed  shall  be  executed  by  both  the  transferor  and  the
                  transferee and until the transferee has been registered in the
                  Register  of Members in respect of the shares so  transferred,
                  the Company may continue to regard the transferor as the owner
                  thereof.


<PAGE>
                                       10


         (b)      The  Board of  Directors  may,  in its  discretion  and to the
                  extent it deems  necessary,  close the Register of Members for
                  registrations  of  transfers  of shares  during any year for a
                  period   determined  by  the  Board  of   Directors,   and  no
                  registrations  of  transfers  of  shares  shall be made by the
                  Company  during any period in which the Register of Members is
                  so closed.

                               SHARE TRANSFER DEED

                  I/we ___________,  of ___________,  for valuable consideration
                  paid to  me/us  by  ___________  of  ___________  (hereinafter
                  called  the  "Transferee")  do  hereby  transfer  to the  said
                  transferee  ____ share (shares)  having a nominal value of NIS
                  ____  each one  numbered  ____  until  ____  inclusive  in the
                  Company called Supercom Ltd. to hold unto the said transferee,
                  his  executors,  administrators,  and assigns,  subject to the
                  several  conditions on which I/We held the same at the time of
                  the  execution  hereof,  and I/We said  transferee,  do hereby
                  agree  to take the  said  share  (or  shares)  subject  to the
                  conditions  aforesaid.  As  witness we have  hereunto  set our
                  hands the __ day of ______, ____.

                  ---------------------             ---------------------
                       Transferee                        Transferor

                  ---------------------             ---------------------
                  Address & Profession              Address & Profession

                  ---------------------             ---------------------
              Witness to the transferee's         Witness to the transferee's

                  ---------------------             ---------------------
                       Signature                           Signature

                  ---------------------             ---------------------
                    Address of Witness               Address of Witness

19.      RECORD DATE FOR NOTICES OF GENERAL MEETING

         Notwithstanding  any other contrary  provision of these  Articles,  the
         Board of Directors may fix a date, not exceeding ninety (90) days prior
         to  the  date  of  any  General  Meeting,  as  the  date  as  of  which
         shareholders entitled to notice of and to vote at such meeting shall be
         determined, and all persons who were holders of record of voting shares
         on such date and no others  shall be  entitled to notice of and to vote
         at such meeting.

20.      SIGNIFICANT SHAREHOLDERS

         Any natural or legal person who  acquires or disposes  of,  directly or
         indirectly, shares of the Company is obliged to notify the Company on a
         form prescribed


<PAGE>
                                       11


         by the  Market  Authority  within  five  days (a day shall  mean  every
         weekday,  Monday to  Friday,  except  those  days on which  the  Market
         Authority has previously  declared that EASDAQ will be closed) from the
         date of such acquisition or disposal of the total number of shares held
         by such person  following such  acquisition  or disposal,  in all cases
         where the  proportion  of shares held  directly or  indirectly  by such
         person  following the transaction  exceeds or falls below the threshold
         of at  least  five  percent  or any  multiple  of five  percent  of all
         outstanding shares of the Company.

         Such person who fails to comply with the aforesaid provisions shall not
         be  entitled  to vote at  shareholders  meetings  for a period  of time
         beginning at the date on which his shareholdings  shall become known to
         the Company and ending on the date which is the later of (i) six mounts
         thereafter, or (ii) the day following the next Annual General Meeting.

                             TRANSMISSION OF SHARES

21.      DECEDENT'S SHARES

         (a)      In case  of a share  registered  in the  names  of two or more
                  holders, the Company may recognize the survivor(s) as the sole
                  owner(s)  thereof  unless and until the  provisions of Article
                  21(b) have been effectively invoked.

         (b)      Any person becoming  entitled to a share in consequence of the
                  death of any person,  upon producing  evidence of the grant of
                  probate  or  letters  of   administration  or  declaration  of
                  succession  (or such other  evidence as the Board of Directors
                  may  reasonably  deem  sufficient),  shall be  registered as a
                  member  in  respect  of such  share,  or may,  subject  to the
                  regulations  as to transfer  herein  contained,  transfer such
                  share.

22.      RECEIVERS AND LIQUIDATORS

         (a)      The Company may recognize any receiver,  liquidator or similar
                  official appointed to wind-up, dissolve or otherwise liquidate
                  a  corporate  member,  and  a  trustee,   manager,   receiver,
                  liquidator or similar  official  appointed in bankruptcy or in
                  connection with the  reorganization  of, or similar proceeding
                  with respect to, a member or its properties, as being entitled
                  to the shares registered in the name of such member.

         (b)      Such  receiver,  liquidator or similar  official  appointed to
                  wind-up,  dissolve or otherwise  liquidate a corporate member,
                  and such  trustee,  manager,  receiver,  liquidator or similar
                  official  appointed in bankruptcy  or in  connection  with the
                  reorganization  of, or similar  proceedings with respect to, a
                  member or its properties,  upon producing such evidence as the
                  Board of Directors may deem  sufficient as to his authority to
                  act in such  capacity  or under this  Article,  shall with the
                  consent  of  the  Board  of  Directors  (which  the  Board  of
                  Directors may grant or refuse in its


<PAGE>
                                       12


                  absolute discretion),  be registered as a member in respect of
                  such shares, or may, subject to the regulations as to transfer
                  herein contained, transfer such shares.

                                GENERAL MEETINGS

23.      ANNUAL GENERAL MEETING

         An Annual General Meeting 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 the Board of Directors.

24.      EXTRAORDINARY GENERAL MEETINGS

         All General Meetings other than Annual General Meetings shall be called
         "Extraordinary  General Meetings" and reference to "General  Meetings".
         The  Board of  Directors  may,  whenever  it  thinks  fit,  convene  an
         Extraordinary General Meeting, at such time and place, within or out of
         the State of Israel,  as may be  determined  by the Board of Directors,
         and  shall  be  obliged  to do so  upon a  requisition  in  writing  in
         accordance with Section 109 of the Companies Ordinance.

25.      NOTICE OF GENERAL MEETINGS: OMISSION TO GIVE NOTICE

         (a)      Not less than  twenty-one  (21) days'  prior  notice  shall be
                  given of every General Meeting, whether it is proposed to pass
                  a special  resolution  thereat or not.  Each such notice shall
                  specify  the place and the day and hour of the meeting and the
                  general  nature of each item to be acted  upon  thereat,  said
                  notice to be given to all  members  who would be  entitled  to
                  attend  and  vote  at  such   meeting.   Notwithstanding   the
                  foregoing,  with the consent of all  members  entitled to vote
                  thereon,  a  resolution  may be  proposed  and  passed at such
                  meeting although a lesser notice than  hereinabove  prescribed
                  has been given.

         (b)      The  accidental  omission  to give  notice of a meeting to any
                  member,  or the  non-receipt  of notice  sent to such  member,
                  shall not invalidate the proceedings at such meetings.

                         PROCEEDINGS AT GENERAL MEETINGS

26.      QUORUM

         (a)      No business  shall be transacted at a General  Meeting,  or at
                  any  adjournment  thereof,  unless the quorum  required  under
                  these  Articles  for such  General  Meeting or such  adjourned
                  meeting,  as the  case may be,  is  present  when the  meeting
                  proceeds to business.

<PAGE>
                                       13

         (b)      In the absence of contrary  provisions in these Articles,  two
                  or more members (not in default in payment of any sum referred
                  to in Article 32(a) hereof), present in person or by proxy and
                  holding  shares  conferring  in the  aggregate 33 1/3% (thirty
                  three  and one  third  percent)  of the  voting  power  of the
                  Company, shall constitute a quorum at General Meetings.

         (c)      If within half an hour from the time appointed for the meeting
                  a quorum is not present,  the meeting  shall be adjourned  for
                  lack of quorum,  in such case the  Company  shall  immediately
                  issue a notice of a reconvened  meeting which shall take place
                  21 days following the date of such notice at the same time and
                  place,  or any  time  and  place  as the  Board  of  Directors
                  designated in the notice to the members.  No business shall be
                  transacted at any  reconvened  meeting  except  business which
                  might  lawfully  have  been   transacted  at  the  meeting  as
                  originally  called.  At such  adjourned  meeting,  any two (2)
                  members (not in default as aforesaid)  present in person or by
                  proxy, shall constitute a quorum.

27.      CHAIRMAN

         The  Chairman,  if any,  of the Board of  Directors  shall  preside  as
         Chairman at every General  Meeting of the Company.  If there is no such
         Chairman,  or if at any meeting he is not present  within  fifteen (15)
         minutes after the time fixed for holding the meeting or is unwilling to
         act as Chairman,  the members present shall  designate a Chairman.  The
         office of Chairman shall not, by itself, entitle such holder thereof to
         vote at any  General  Meeting  nor shall it  entitle  such  holder to a
         second or casting vote (without derogating,  however, from the right of
         such Chairman to vote as a shareholder or proxy of a shareholder).

28.      ADOPTION OF RESOLUTION AT GENERAL MEETINGS

         (a)      (i)      An  Ordinary  Resolution  shall be deemed  adopted if
                           approved  by the  holders of a majority of the voting
                           power  represented  at the  meeting  in  person or by
                           proxy and voting thereon.

                  (ii)     A Special or Extraordinary Resolution shall be deemed
                           adopted if  approved  by the holders of not less than
                           seventy-five   percent  (75%)  of  the  voting  power
                           represented  at the meeting in person or by proxy and
                           voting thereon.

         (b)      Every question submitted to a General Meeting shall be decided
                  by a show of hands, but if a written ballot is demanded by any
                  member  present in person or by proxy and  entitled to vote at
                  the  meeting,  the same  shall be decided  by such  ballot.  A
                  written ballot may be demanded before the proposed  resolution
                  is voted  upon or  immediately  after the  declaration  by the
                  Chairman of the result of the vote by show of hands. If a vote
                  by written ballot is taken after such declaration, the results
                  of the vote by a show of hands shall be of no effect, and the

<PAGE>
                                       14



                  proposed  resolution  shall be decided by such written ballot.
                  The demand for a written  ballot may be  withdrawn at any time
                  before the same is conducted,  in which event  another  member
                  may then demand such written ballot.  The demand for a written
                  ballot  shall not prevent the  continuance  of the meeting for
                  the  transaction  of business other than the question on which
                  the written ballot has been demanded.

         (c)      A declaration by the Chairman of the meeting that a resolution
                  has been  carried  unanimously,  or  carried  by a  particular
                  majority,  or lost,  and an entry to that effect in the minute
                  book of the  Company,  shall  be  conclusive  evidence  of the
                  number  or  proportion  of the votes  recorded  in favor of or
                  against such resolution.

29.      RESOLUTIONS IN WRITING

         A  resolution  in writing  signed by all  members of the  Company  then
         entitled  to attend and vote at General  Meetings  or to which all such
         members have given their written consent (by letter,  telegram,  telex,
         facsimile,   e-mail  or  otherwise)   shall  be  deemed  to  have  been
         unanimously adopted by a General Meeting duly convened and held.

30.      POWER TO ADJOURN

         The  Chairman  of a General  Meeting at which a quorum is present  may,
         with the  consent  of the  holders of a  majority  of the voting  power
         represented  in  person  or by proxy  and  voting  on the  question  of
         adjournment,  adjourn the  meeting  from time to time and from place to
         place,  but no business  shall be transacted  at any adjourned  meeting
         except  business  which  might  lawfully  have been  transacted  at the
         meeting as originally called provided,  however,  that a Notice thereof
         shall be given in the manner specified in section 25 hereinabove.

31.      VOTING POWER

         Subject to the provisions of Article 32(a) and subject to any provision
         hereof conferring special rights as to voting, or restricting the right
         to vote, every member shall have one vote for each share held by him of
         record, on every resolution, without regard to whether the vote thereon
         is  conducted  by a show of hands,  by  written  ballot or by any other
         means.

32.      VOTING RIGHTS

         (a)      No member shall be entitled to vote at any General Meeting (or
                  be counted as a part of the quorum thereat),  unless all calls
                  then  payable by him in  respect of his shares in the  Company
                  have been  paid,  but this  Article  32(a)  shall not apply to
                  separate General Meetings of the holders of a particular class
                  of shares pursuant to Article 6(b).
<PAGE>
                                       15


         (b)      A  company  or other  corporate  body  being a  member  of the
                  Company may duly authorize any person to be its representative
                  at any meeting of the Company or to execute or deliver a proxy
                  on its behalf.  Any person so authorized  shall be entitled to
                  exercise  on behalf  of such  member  all the power  which the
                  latter  could  have   exercised  if  it  were  an   individual
                  shareholder.  Upon the request of the Chairman of the meeting,
                  written evidence of such  authorization (in form acceptable to
                  the Chairman) shall be delivered to him.

         (c)      Any member  entitled  to vote may vote  either in person or by
                  proxy  (who need not be a member of the  Company),  or, if the
                  member  is  a  company   or  other   corporate   body,   by  a
                  representative authorized pursuant to Article 32(b).

         (d)      If two or more persons are  registered as joint holders of any
                  share, the vote of the senior who tenders a vote, in person or
                  by proxy, shall be accepted to the exclusion of the vote(s) of
                  the other joint  holder(s).  For the  purpose of this  Article
                  32(d),   seniority   shall  be  determined  by  the  order  of
                  registration of the joint holders in the Register of Members.

                                     PROXIES

33.      INSTRUMENT OF APPOINTMENT

         (a)      An instrument appointing a proxy shall be in writing and shall
                  be substantially in the following form:

                  "I ________________ of ______________________
                  (Name of Shareholder)  (Address of Shareholder)
                  being a member of the SUPERCOM LTD., hereby appoint
                  ___________________ of _____________________
                  (Name of Proxy)          (Address of Proxy)
                  as my  proxy to vote for me and on my  behalf  at the  General
                  Meeting of the Company to be held on the _____day of ________,
                  _____________ and at any adjournment(s) thereof.
                  Signed this _____ day of __________, _____,

                  or in any usual or common form or in such other form as may be
                  approved by the Board of  Directors.  Such proxy shall be duly
                  signed  by the  appointer  or such  person's  duly  authorized
                  attorney or, if such appointer is a company or other corporate
                  body,  under its common  seal or stamp or the hand of its duly
                  authorized agent(s) or attorney(s).

         (b)      The  instrument  appointing a proxy (and the power of attorney
                  or other  authority,  if any, under which such  instrument has
                  been signed) shall be delivered to the Company (at the Office,
                  at its principal  place of business,  or at the offices of its
                  registrar or transfer agent, or at such

<PAGE>
                                       16


                  other place as the Board of  Directors  may  specify) not less
                  than  twenty-four (24) hours before the time fixed for meeting
                  at which the person named in the instrument proposes to vote.

34.      EFFECT OF DEATH OF APPOINTOR OF PROXY OR REVOCATION OF APPOINTMENT

         (a)      A vote cast in  accordance  with an  instrument  appointing  a
                  proxy  shall  be  valid  notwithstanding  the  prior  death or
                  bankruptcy   of   the    appointing    member   (or   of   his
                  attorney-in-fact,  if any, who signed such instrument), unless
                  written notice thereof shall have been received by the Company
                  or by the  Chairman of such  meeting  prior to such vote being
                  cast

         (b)      An instrument  appointing a proxy shall be deemed  revoked (I)
                  upon  receipt by the Company or the  Chairman,  subsequent  to
                  receipt by the Company of such  instrument,  of written notice
                  signed by the person signing such  instrument or by the member
                  appointing such proxy canceling the appointment thereunder (or
                  the authority pursuant to which such instrument was signed) or
                  of an instrument  appointing a different proxy (and such other
                  documents,  if any,  required  under  Article  33 for such new
                  appointment),   provided  such  notice  of   cancellation   or
                  instrument  appointing  a different  proxy were so received at
                  the place and within the time for  delivery of the  instrument
                  revoked  thereby as referred to in Article  33(b)  hereof,  or
                  (ii) if the  appointing  member  is  present  in person at the
                  meeting for which such instrument of proxy was delivered, upon
                  receipt by the Chairman of such meeting of written notice from
                  such member of the revocation of such  appointment,  or if and
                  when  such  member  votes  at  such  meeting.  A vote  cast in
                  accordance  with an  instrument  appointing  a proxy  shall be
                  valid notwithstanding the revocation of purported cancellation
                  of the  appointment,  or the presence in person or vote of the
                  appointing  member  at a meeting  for  which it was  rendered,
                  unless such  instrument of  appointment  was deemed revoked in
                  accordance with the foregoing provisions of this Article 34(b)
                  at or prior to the time such vote was cast.

                               BOARD OF DIRECTORS

35.      POWERS OF BOARD OF DIRECTORS

         (a)      In General

                  The  management of the business of the Company shall be vested
                  in the Board of Directors,  which may exercise all such powers
                  and do all such acts and things as the  Company is  authorized
                  to exercise  and do, and are not hereby or by law  required to
                  be  exercised  or done by the Company by action of its members
                  at a General Meeting.  The authority conferred on the Board of
                  Directors   by  this  Article  35  shall  be  subject


<PAGE>
                                       17


                  to the provisions of the Companies  Ordinance,  these Articles
                  and  any  regulation  or  resolution   consistent  with  these
                  Articles adopted from time to time by the Company by action of
                  its members at a General Meeting,  provided,  however, that no
                  such regulation or resolution  shall  invalidate any prior act
                  done by or pursuant  to a decision  of the Board of  Directors
                  which would have been valid if such  regulation  or resolution
                  had not been adopted.

         (b)      Borrowing Power

                  The  Board  of  Directors  may  from  time  to  time,  at  its
                  discretion,  cause the Company to borrow or secure the payment
                  of any sum or sums of money for the  purposes of the  Company,
                  and may secure or  provide  for the  repayment  of such sum or
                  sums in such  manner,  at such  times and upon such  terms and
                  conditions  as it  deems  fit,  and,  in  particular,  by  the
                  issuance  of  bonds,   perpetual  or  redeemable   debentures,
                  debenture stock, or any mortgages, charges or other securities
                  on the undertaking or the whole or any part of the property of
                  the Company,  both present and future,  including its uncalled
                  or called but unpaid capital for the time being.

         (c)      Reserves

                  The Board of Directors  may, from time to time,  set aside any
                  amount(s)  out of the  profits of the  Company as a reserve or
                  reserves for any purpose(s)  which the Board of Directors,  in
                  its absolute  discretion,  shall deem fit, including,  without
                  limitation,  capitalization  and distribution of bonus shares,
                  and may  invest  any sum so set aside in any  manner  and from
                  time to time deal with and vary such investments,  and dispose
                  of all or any part thereof, and employ any such reserve or any
                  part  thereof in the  business  of the Company  without  being
                  bound to keep the  same  separate  from  other  assets  of the
                  Company,  and may  subdivide  or  redesignate  any  reserve or
                  cancel  the  same or  apply  the  funds  therein  for  another
                  purpose,  all as the Board of Directors  may from time to time
                  think fit.

36.      EXERCISE OF POWERS OF BOARD OF DIRECTORS

         (a)      A  meeting  of the  Board of  Directors  at which a quorum  is
                  present  shall be competent  to exercise all the  authorities,
                  powers and discretion vested in or exercisable by the Board of
                  Directors.

         (b)      A resolution proposed at any meeting of the Board of Directors
                  shall be deemed  adopted  if  approved  by a  majority  of the
                  Directors  present when such  resolution  is put to a vote and
                  voting thereon.

         (c)      A resolution in writing  signed by all the  Directors  then in
                  office and  lawfully  entitled  to vote  thereon  (as shall be
                  conclusively determined by the Chairman of the Audit Committee
                  of  the  Board  of  Directors  and


<PAGE>
                                       18


                  in the absence of such  determination - by the Chairman of the
                  Board of Directors)  or to which all the Directors  have given
                  their written consent (by letter, telegram,  telex, facsimile,
                  electronic  mail or  otherwise)  shall be  deemed to have been
                  unanimously  adopted  by a meeting  of the Board of  Directors
                  duly convened and held.

37.      DELEGATION OF POWERS

         (a)      The Board of Directors  may,  subject to the provisions of the
                  Companies  Ordinance,  delegate  any or all of its  powers  to
                  committees, each consisting of one or more persons, and it may
                  from  time  to  time  revoke  such  delegation  or  alter  the
                  composition of any such committee. Any Committee so formed (in
                  these  Articles  referred to as a  "Committee  of the Board of
                  Directors"),   shall,   in  the  exercise  of  the  powers  so
                  delegated,  conform  to any  regulations  imposed on it by the
                  Board of Directors.  The meetings and  proceedings of any such
                  Committee of the Board of Directors shall,  mutatis  mutandis,
                  be governed by the provisions  herein contained for regulating
                  the  meetings  of  the  Board  of  Directors,  so  far  as not
                  superseded  by  any  regulations   adopted  by  the  Board  of
                  Directors under these  Articles.  Unless  otherwise  expressly
                  provided by the Board of Directors in  delegating  powers to a
                  Committee of the Board of Directors,  such Committee shall not
                  be empowered to further delegate such powers.

         (b)      Without  derogating  from the  provisions  of Article  50, the
                  Board of  Directors  may from time to time appoint a Secretary
                  of the Company,  as well as such officers,  agents,  employees
                  and independent  contractors,  as the Board of Directors deems
                  fit, and may  terminate  the service of any such  person.  The
                  Board of  Directors  may,  subject  to the  provisions  of the
                  Companies Ordinance,  determine the powers and duties, as well
                  as the  salaries and  emoluments,  of all such persons and may
                  require security in such cases and in such amounts as it deems
                  fit.

         (c)      The  Board of  Directors  may from  time to time,  by power of
                  attorney or otherwise,  appoint any person,  company,  firm or
                  body  of  persons  to be  the  attorney  or  attorneys  of the
                  Company,  at law or in fact, for such purpose(s) and with such
                  powers,  authorities  and/discretion,  and for such period and
                  subject  to such  conditions,  as it deems  fit,  and any such
                  power  of  attorney  or other  appointment  may  contain  such
                  provisions  for the  protection  and  convenience  of  persons
                  dealing with any such attorney as the Board of Directors deems
                  fit, and may also  authorize any such attorney to delegate all
                  or any of the powers,  authorities  and  discretion  vested in
                  him.

38.      NUMBER OF DIRECTORS

         The Board of Directors of the Company  shall  consist of such number of
         Directors  (not  less  than two (2) nor more  than  eight (8) as may be
         fixed from time to time, by Ordinary Resolution at any General Meeting.


<PAGE>
                                       19


39.      ELECTION AND REMOVAL OF DIRECTORS

         (a)      Directors shall be elected at the Annual General  Meeting,  by
                  the vote of the  holders  of a majority  of the  voting  power
                  represented  at such  meeting in person or by proxy and voting
                  on the election of Directors.

         (b)      Each director  shall hold office until the next Annual General
                  Meeting  or  until  his  office  is  vacated  pursuant  to the
                  provisions of section 41 hereof.

         (c)      Any increase in the number of Directors constituting the board
                  of Directors, shall be deemed to create a vacancy in the board
                  of Directors,  which may be filled only pursuant to Article 40
                  hereof.

         (d)      The Company may, by an Ordinary Resolution,  remove a Director
                  from his  office  before the end of his term of  service,  and
                  may, by an Ordinary  Resolution passed within thirty (30) days
                  thereafter,  elect  another in his stead;  and such  successor
                  shall hold office  until the Annual  General  Meeting at which
                  the term of the removed Director would have expired.

40.      VACANCIES

         If a Director's  office becomes vacant,  for whatever reason (including
         by reason of removal from office, if the vacancy created thereby is not
         filled by the members  during the period  prescribed  in Article  39(d)
         hereof),  the Board of  Directors  may,  by the  affirmative  vote of a
         majority of the Directors  then in office (even if less than the quorum
         otherwise  required  under  these  Articles),  elect a person  for such
         vacant office, provided such elected person shall retire on the date of
         the first Annual General Meeting thereafter.

         If the position of a Director is vacated,  the other Directors shall be
         entitled  to act in every  matter  so long as their  number is not less
         than the quorum  required  at the time for  meetings of  Directors.  If
         their number  decrease below said quorum,  they will not be entitled to
         act except in order to fill vacant  positions on the Board of Directors
         or to call a General Meeting of the Company.

41.      VACATION OF OFFICE

         (a)      The office of a Director  shall be vacated,  ipso facto,  upon
                  his  death,  or if he be found  lunatic  or become of  unsound
                  mind,  of if he  becomes  bankrupt,  or if the  Director  is a
                  company,  upon its winding-up or upon removal by the companies
                  general  meeting  pursuant to the  provisions of Article 39(d)
                  hereinabove.

         (b)      The  office of a  Director  shall be  vacated  by his  written
                  resignation.  Such  resignation  shall become effective on the
                  date  fixed  therein,  or upon  the  delivery  thereof  to the
                  Company, whichever is later.


<PAGE>
                                       20


42.      QUALIFICATION OF DIRECTORS

         No person shall be disqualified to serve as a Director by reason of his
         not holding  shares in the Company by reason of his having  served as a
         Director in the past.

43.      REMUNERATION OF DIRECTORS

         A Director shall be paid  remuneration  by the Company for his services
         as Director to the extent such remuneration shall have been approved by
         a General Meeting of the Company.

44.      APPROVAL OF CERTAIN TRANSACTIONS

         The Board of  Directors  will be  authorized  to  approve  transactions
         pursuant to Sections 96(30) and 96(31) of the Companies Ordinance.

45.      ALTERNATE DIRECTORS

         (a)      A Director may, by written  notice to the Company given in the
                  manner set forth in Article  45(b)  below,  appoint one of the
                  directors  as an  alternate  for  himself  (in these  Articles
                  referred to as "Alternate  Director"),  remove such  Alternate
                  Director,  and appoint another Alternate  Director in place of
                  any Alternate  Director appointed by him whose office has been
                  vacated  for any  reason  whatsoever.  Unless  the  appointing
                  Director,  by the instrument  appointing an Alternate Director
                  or by written notice to the Company,  limits such  appointment
                  to a specified  period of time or  restricts it to a specified
                  meeting  or  action of the Board of  Directors,  or  otherwise
                  restricts  its  scope,   the  appointment   shall  be  for  an
                  indefinite period, and for all purposes.

         (b)      Any notice to the Company  pursuant to Article  45(a) shall be
                  given in  person  to,  or by  sending  the same by mail to the
                  attention  of, the  Secretary  or the  General  Manager of the
                  Company  as the  principal  office of the  Company  or to such
                  other  person or place as the Board of  Directors  shall  have
                  determined for such purpose and shall become  effective on the
                  date fixed therein, or upon the receipt thereof by the Company
                  (at the place as aforesaid), whichever is later.

         (c)      An   Alternate   Director   shall  have  all  the  rights  and
                  obligations  of the  Director  who  appointed  him,  provided,
                  however,  that he may not in turn appoint as an alternate  for
                  himself  (unless  the  instrument   appointing  him  otherwise
                  expressly  provides),  and provided  further that an Alternate
                  Director shall have no standing at any meeting of the Board of
                  Directors  or any  committee  thereof  while the  Director who
                  appointed him is present.

<PAGE>
                                       21

         (d)      Any natural person, whether or not he be a member of the Board
                  of Directors, may act as an Alternate Director. One person may
                  act as Alternate Director for several  Directors,  and in such
                  event he shall have a number of votes (and shall be treated as
                  the number of persons for purposes of  establishing  a quorum)
                  equal to the number of Directors for whom he acts as Alternate
                  Director.  If an Alternate  director is also a Director in his
                  own right,  his rights as an  Alternate  director  shall be in
                  addition to his rights as a Director.

         (e)      An Alternate  Director shall alone be responsible  for his own
                  acts and  omissions,  and he shall not be deemed  the agent of
                  the Director(s) who appointed him.

         (f)      The office of an Alternate Director shall be vacated under the
                  circumstances,  mutatis mutandis, set forth in Article 41, and
                  such office  shall ipso facto be vacated if the  Director  who
                  appointed such Alternate Director ceases to be Director.

                      PROCEEDINGS OF THE BOARD OF DIRECTORS

46.      MEETINGS

         (a)      The Board of  Directors  may meet and adjourn its meetings and
                  otherwise  regulate  such  meetings  and  proceedings  as  the
                  Directors think fit.

         (b)      Any Director may at any time, and the Chairman of the Board of
                  Directors, upon the request of such Director, shall, convene a
                  meeting of the Board of  Directors,  but not less than two (2)
                  days' notice shall be given of any meeting so convened. Notice
                  of any such  meeting may be given  orally,  by  telephone,  in
                  writing or by mail,  e-mail,  telex,  cablegram or  facsimile.
                  Notwithstanding  anything to the contrary  herein,  failure to
                  deliver notice to a Director of any such meeting in the manner
                  required hereby may be waived by such Director,  and a meeting
                  shall be deemed to have  been  duly  convened  notwithstanding
                  such  defective  notice,  if such  failure or defect is waived
                  prior to action being taken at such  meeting by all  Directors
                  entitled to participate at such meeting to whom notice was not
                  duly given as aforesaid.

47.      QUORUM

         Until otherwise unanimously decided by the Board of Directors, a quorum
         at a meeting  of the Board of  Directors  shall be  constituted  by the
         presence in person or by telephone conference of at least two Directors
         constituting  a  majority  of the  Directors  then  in  office  who are
         lawfully  entitled  to  participate  in the  meeting  (as  conclusively
         determined  by the  Chairman  of the  Audit  Committee  of the Board of
         Directors,  or, in the absence of such  determination - by the Chairman
         of the Board of Directors). No business shall be transacted

<PAGE>
                                       22


         at a meeting of the Board of Directors  unless the requisite  quorum is
         present  (in  person  or by  telephone  conference)  when  the  meeting
         precedes to business.

48.      CHAIRMAN OF THE BOARD OF DIRECTORS

         The Board of  Directors  may from time to time elect one of its members
         to be the Chairman of the Board of Directors, remove such Chairman from
         office and appoint  another in his place.  The Chairman of the Board of
         Directors shall preside at every meeting of the Board of Directors, but
         if there is no such  Chairman,  or if at any  meeting he is not present
         within fifteen (15) minutes of the time fixed for the meeting, or if he
         is unwilling to take the chair, the Directors  present shall choose one
         of their number to be the chairman of such meeting.

49.      VALIDITY OF ACTS DESPITE DEFECTS

         All acts done bona fide at any meeting of the Board of Directors, or of
         a committee of the Board of Directors,  or by any  person(s)  acting as
         Director(s),   shall,   notwithstanding   that  it  may  afterwards  be
         discovered  that  there  was  some  defect  in the  appointment  of the
         participants in such meetings or any of them or any person(s) acting as
         aforesaid,  or that they or any of them were disqualified,  be as valid
         as if there were no defect or disqualification.

                                 GENERAL MANAGER

50.      CHIEF EXECUTIVE OFFICER, GENERAL MANAGER AND PRESIDENT

         The  Board of  Directors  may  from  time to time  appoint  one or more
         persons  whether  or not  Directors,  as  Chief  Executive  Officer(s),
         General  Manager(s) or  President(s) of the Company and may confer upon
         such person(s),  and from time to time modify or revoke,  such title(s)
         (including  Managing  Director,  Director  General  or any  similar  or
         dissimilar  title)  and such  duties  and  authorities  of the Board of
         Directors  as the  Board of  Directors  may deem fit,  subject  to such
         limitations and restrictions as the Board of Directors may from time to
         time prescribe.  Such  appointment(s) may be either for a fixed term or
         without any  limitation  of time,  and the Board of Directors  may from
         time to time  (subject to the  provisions  of the  Statutes  and of any
         contract  between  any such  person and the  Company)  fix his or their
         salaries and emoluments,  remove or dismiss him or them from office and
         appoint another or others in his or their place or places.

                                     MINUTES

51.      MINUTES

         (a)      Minutes of each  General  Meeting  and of each  meeting of the
                  Board of Directors  shall be  recorded,  whether in writing or
                  otherwise, in writing


<PAGE>
                                       23


                  and duly entered in books provided for that purpose, and shall
                  be held by the Company at its  principal  office or the Office
                  or such other place as shall have been determined by the Board
                  of Directors. Such minutes shall, in all events, set forth the
                  names  of  the   persons   present  at  the  meeting  and  all
                  resolutions adopted thereat.

         (b)      Any minutes as  aforesaid,  if  purporting to be signed by the
                  chairman  of the  meeting  or by  the  chairman  of  the  next
                  succeeding  meeting,  shall constitute prima facie evidence of
                  the matters recorded therein.

                                    DIVIDENDS

52.      DECLARATION OF DIVIDENDS

         The Board of  Directors  may from time to time  declare,  and cause the
         Company to pay,  such  interim  dividend  as may appear to the Board of
         Directors  to be  justified  by the profits of the  Company.  The final
         dividend in respect of any fiscal period shall be proposed by the Board
         of Directors and shall be payable only after the same has been approved
         by Ordinary  Resolution of the Company,  but no such  resolution  shall
         provide for the payment of any amount  exceeding  that  proposed by the
         Board of Directors for the payment of such final dividend,  and no such
         resolution or any failure to approve a final  dividend shall affect any
         interim dividend  theretofore declared and paid. The Board of Directors
         shall  determine the time for payment of such  dividends,  both interim
         and  final,  and the  record  date  for  determining  the  shareholders
         entitled thereto.

53.      FUNDS AVAILABLE FOR PAYMENT OF DIVIDENDS

         No  dividend  shall be paid  otherwise  than out of the  profits of the
         Company.

54.      AMOUNT PAYABLE BY WAY OF DIVIDENDS

         (a)      Subject  to  the  rights  of  the  holders  of  shares  as  to
                  dividends, any dividend paid by the Company shall be allocated
                  among the members  entitled  thereto in proportion to the sums
                  paid up or credited as paid up on account of the nominal value
                  of their respective  holding of the shares in respect of which
                  such dividend is being paid,  without  taking into account the
                  premium paid up for the shares.  The amount paid up on account
                  of a shares  which  was not yet been  called  for  payment  or
                  fallen  due for  payment  and  upon  which  the  Company  pays
                  interest  to the  shareholder,  shall not be  deemed,  for the
                  purposes  of the  Article,  to be a sum paid on account of the
                  share.

         (b)      Whenever  the  rights  attached  to any shares or the terms of
                  issue of the shares do not provide otherwise, shares which are
                  fully paid up or which are  credited  as fully or partly  paid
                  within any period which in respect thereof  dividends are paid
                  shall entitle the holders thereof to a

<PAGE>
                                       24


                  dividend  in  proportion  to the amount paid up or credited as
                  paid up in respect of the nominal  value of such shares and to
                  the date of payment thereof (pro rata temporis).

55.      INTEREST

                  No dividend shall bear interest as against the Company.

56.      PAYMENT IN SPECIE

         A dividend,  whether interim or final,  may be paid in full or in part,
         by  the   distribution   of  specific  assets  of  the  Company  or  by
         distribution  of shares or  debentures  of the  Company or of any other
         company, or in any one or more such ways.

57.      CAPITALIZATION

         Upon the  recommendation of the Board of Directors approved by Ordinary
         Resolution  of the  Company,  the  Company  (i) may cause  any  moneys,
         investments,  or other assets forming part of the undivided  profits of
         the Company, standing to the credit of a reserve fund, or to the credit
         of a reserve fund for the redemption of capital, or in the hands of the
         Company and available for dividends,  or representing premiums received
         on the  issuance  of shares  and  standing  to the  credit of the share
         premium  account,  to be capitalized and distributed  among such of the
         members as would be entitled to receive the same if  distributed by way
         of dividend and in the same proportion, on the footing that they become
         entitled thereto as capital, or cause any part of such capitalized fund
         to be  applied  on  behalf of such  shareholders  in paying up in full,
         either at par or at such premium as the  resolution  may  provide,  any
         unissued  shares or debentures or debenture  stock of the Company which
         shall be distributed accordingly,  or in payment in full or in part, of
         the uncalled  liability on any issued shares or debentures on debenture
         stock;  and (ii) may cause such  distribution or payment to be accepted
         by such  members in full  satisfaction  of their  interest  in the said
         capitalized sum.

58.      IMPLEMENTATION OF POWERS UNDER ARTICLES 56 AND 57

         For the purpose of giving full effect to any resolution  under Articles
         56 or 57, and without  derogating  from the  provisions of Article 7(b)
         hereof,  the Board of  Directors  may settle any  difficulty  which may
         arise in regard to the  distribution  as it thinks  expedient,  and, in
         particular,  may issue fractional  certificates,  and may fix the value
         for  distribution of any specific  assets,  and may determine that cash
         payments  shall be made to any members upon the footing of the value so
         fixed,  or that  fractions of less value than the nominal  value of one
         share may be  disregarded in order to adjust the rights of all parties,
         and may vest any such  cash,  shares,  debentures,  debenture  stock or
         specific assets in trustees upon trusts for the persons entitled to the
         dividend  or  capitalized  fund as may seem  expedient  to the Board of
         Directors.  Where  requisite,  a proper  contract  shall be  filled  in
         accordance with Section 130 of Companies

<PAGE>
                                       25


         Ordinance,  and the Board of  Directors  may appoint any person to sign
         such  contract  on behalf of the persons  entitled  to the  dividend or
         capitalized fund.

59.      DIVIDENDS ON UNPAID SHARES

         Without  derogating from Article 54 hereof,  the Board of Directors may
         give an instruction  which shall prevent the distribution of a dividend
         to the holders of shares the full nominal  amount of which has not been
         paid up.

60.      RETENTION OF DIVIDENDS

         (a)      The Board of Directors may retain any dividend or other moneys
                  payable  or  property  distributable  in respect of a share on
                  which  the  Company  has a lien,  and may apply the same in or
                  toward satisfaction of the debts, liabilities,  or engagements
                  in respect of which the lien exists.

         (b)      The Board of Directors may retain any dividend or other moneys
                  payable  or  property  distributable  in respect of a share in
                  respect  of which  any  person  is,  under  article  21 or 22,
                  entitled  to become a member,  or which any person  is,  under
                  said Articles,  entitled to transfer,  until such person shall
                  become a member in respect of such share or shall transfer the
                  same.

61.      UNCLAIMED DIVIDENDS

         All unclaimed  dividends or other moneys  payable in respect of a share
         may be invested or otherwise made use of by the Board of Directors from
         the benefit of the Company until claimed.  The payment by the Directors
         of any unclaimed  dividend or such other moneys into a separate account
         shall not  constitute  the  Company a trustee in respect  thereof.  The
         principal  (and only the  principal)  of an unclaimed  dividend or such
         other money shall be, if claimed, paid to a person entitled thereto.

62.      MECHANICS OF PAYMENT

         The Board of Directors may fix the mechanics of payment of dividends as
         it deems fit. However, if the resolution of the Board of Directors does
         not provide  otherwise,  then any dividend or other  moneys  payable in
         cash in respect of a share may be paid by check or warrant sent through
         the post to, or left at, the registered  address of the person entitled
         thereto or by transfer to a bank account  specified by such person (or,
         if two or more persons are registered as joint holders of such share or
         are entitled  jointly thereto in consequence of the death or bankruptcy
         of the  holder  or  otherwise,  to  the  joint  holder  whose  name  is
         registered  first in the Register of Members or his bank account or the
         person  who the  Company  may then  recognize  as the owner  thereof or
         entitled thereto under Article 21 or 22 hereof, as applicable,  or such
         person's bank account),  or to such person and at such other address as
         the person entitled thereto may be writing direct.  Every such check or
         warrant

<PAGE>
                                       26


         Shall be made payable to the order of the person to whom it is sent, or
         to such person as the person entitled  thereto as aforesaid may direct,
         and payment of the check or warrant by the banker upon whom it is drawn
         shall be a good discharge to the Company.

63.      RECEIPT FROM A JOINT HOLDER

         If two or more persons are registered as joint holders of any share, or
         are entitled  jointly thereto in consequence of the death or bankruptcy
         of the holder or otherwise, any one of them may give effectual receipts
         for any dividend or other moneys payable or property  distributable  in
         respect of such share.

                                    ACCOUNTS

64.      BOOKS OF ACCOUNT

         The Board of Directors shall cause accurate books of account to be kept
         in accordance with the provisions of the Companies Ordinance and of any
         other  applicable  law.  Such  books  of  account  shall be kept at the
         Office,  or at such other place or places as the Board of Directors may
         think  fit,  and  they  shall  always  be  open  to  inspection  by all
         Directors.  No member,  not being a  Director,  shall have any right to
         inspect any account or book or other  similar  document of the Company,
         except as conferred by law or  authorized  by the Board of Directors or
         by Ordinary Resolution of the Company.

65.      AUDIT

         At least once in every fiscal year the accounts of the Company shall be
         audited, and the correctness of the profit and loss account and balance
         sheet certified, by one or more duly qualified auditors.

66.      AUDITORS

         The  appointment,  authorities,  rights and duties of the auditor(s) of
         the Company shall be regulated by applicable  law,  provided,  however,
         that in  exercising  its  authority  to fix,  the  remuneration  of the
         auditor(s), the members in General Meeting may, by Ordinary Resolution,
         act (and in the absence of any action in connection therewith, shall be
         deemed to have so acted),  to  authorize  the Board of Directors to fix
         such remuneration subject to such criteria or standards, if any, as may
         be provided in such  Ordinary  Resolution,  and if no such  criteria or
         standards  are so  provided,  such  remunerations  shall be fixed in an
         amount commensurate with the volume and nature of the services rendered
         by such auditor(s).

                                BRANCH REGISTERS

67.      BRANCH REGISTERS



<PAGE>
                                       27


         Subject to and in accordance  with the provisions of Sections 71 to 80,
         inclusive, of the Companies Ordinance and to all orders and regulations
         issued thereunder, the Company may cause branch registers to be kept in
         any place outside  Israel as the Board of Directors may think fit, and,
         subject to all applicable  requirements  of law, the Board of Directors
         may from time to time adopt such rules and  procedures  as it may think
         fit in connection with the keeping of such branch registers.

                      RIGHTS OF SIGNATURE, STAMP AND SEAL

68.      RIGHTS OF SIGNATURE: SEAL

         (a)      The Board of  Directors  shall be  entitled to  authorize  any
                  person or persons (who need not be  Directors) to act and sign
                  on behalf of the  Company and the acts and  signature  of such
                  person(s)  on behalf of the  Company,  shall bind the  Company
                  insofar as such person(s) acted and signed within the scope of
                  his or their authority.

         (b)      The Board of Directors may provide for a seal. If the Board of
                  Directors  so  provides,  it shall also  provide  for the safe
                  custody  thereof.  Such  seal  shall  not be  used  except  by
                  authority of the Board of Directors and in the presence of the
                  person(s)  authorized  to sign on behalf of the  Company,  who
                  shall sign every instrument to which such seal is affixed.

         (c)      The Company may exercise  the powers  conferred by Section 102
                  of the  Companies  Ordinance  regarding a seal for use abroad,
                  and such powers shall be vested in the Board of Directors.

                                     NOTICES

69.      NOTICES

         (a)      Any  written  notice  or other  document  may be served by the
                  Company upon any member either  personally or by sending it by
                  prepaid mail  (airmail if sent  internationally)  addressed to
                  such member at his  address as  described  in the  Register of
                  Members or such other  address  as he may have  designated  in
                  writing for the receipt of notices  and other  documents.  Any
                  written  notice or other  document may be served by any member
                  upon  the  Company  by  tendering  the same in  person  to the
                  Secretary  or  the  General  Manager  of  the  Company  at the
                  principal  office of the  Company  or by sending it by prepaid
                  registered  mail  (airmail  if posted  outside  Israel) to the
                  Company at the Office. Any such notice or other document shall
                  be deemed to have been served frothy-eight (48) hours after it
                  has   been   posted   (seven   (7)   business   days  if  sent
                  internationally),  or when actually  received by the addressee
                  if sooner than  frothy-eight  hours or seven days, as the case
                  may be, after it

<PAGE>
                                       28


                  has been posted,  or when actually tendered in person, to such
                  member (or to the  Secretary or the General  Manager).  Notice
                  sent by cablegram,  telex,  facsimile or electronic mail shall
                  be deemed to have been served when  actually  received by such
                  member (or by the Company).  If a notice is, in fact, received
                  by the addressee,  it shall be deemed to have been duly served
                  when  received,   notwithstanding   that  it  was  defectively
                  addressed or failed, in some other respect, to comply with the
                  provisions of this Article 69(a).

         (b)      All notices to be given to the members shall,  with respect to
                  any share to which persons are jointly  entitled,  be given to
                  whichever of such persons is named in the Register of Members,
                  and any notice so given shall be  sufficient  notice to all of
                  the holders of such share.

         (c)      Any member whose  address is not  described in the Register of
                  Members,  and who  shall not have  designated  in  writing  an
                  address for the  receipt of notices,  shall not be entitled to
                  receive any notice from the Company.

         (d)      Notwithstanding  anything to the  contrary  contained  herein,
                  notice by the Company of a General  Meeting which is published
                  in at least two daily newspapers in the State of Israel within
                  the time otherwise  required for giving notice of such meeting
                  under  Article  25  hereof  and  containing  the   information
                  required  to be set forth in such notice  under such  Article,
                  shall be deemed to be a notice of such meeting duly given, for
                  purposes  of these  Articles,  to any  member  who  address as
                  registered  in the Register of Members is located in the State
                  of Israel.

                             INDEMNITY AND INSURANCE

70.      INDEMNITY AND INSURANCE

         (a)      For purposes of these  Articles,  the term "Office Holder" (in
                  Hebrew "Noseh Misra") shall have the meaning ascribed to it in
                  Section 9624 of the Companies Ordinance.

         (b)      Subject to the  provisions  of Section  9644 of the  Companies
                  Ordinance, the Company may enter into a contract to insure all
                  or part of the  liability of an Office Holder by reason of any
                  one of the following:

                  (i)      a breach of his duty of care  toward  the  Company or
                           another person;

                  (ii)     a  breach  of his  fiduciary  duty  to  the  Company,
                           provided  that the Office  Holder acted in good faith
                           and had reasonable  grounds to assume that the action
                           would not prejudice the interests of the Company;


<PAGE>
                                       29



                  (iii)    a  monetary  liability  imposed  upon him in favor of
                           another  person by  reason of an action  taken by the
                           Office Holder in his capacity as such; or

                  (iv)     any other  event for which the Company may be allowed
                           to insure the liability of an Office Holder.

         (c)      Subject to the provisions of Sections 96(43) and 96(44) of the
                  Companies  Ordinance,  the  Company  may  indemnify  an Office
                  Holder against:

                  (i)      a  monetary  liability  imposed  on him in  favor  of
                           another  person  pursuant to a judgment,  including a
                           settlement  judgment or an arbitrator  award approved
                           by a court,  by reason  of an action  taken by him in
                           his capacity as an Office Holder; and

                  (ii)     reasonable litigation expenses,  including attorney's
                           fees,  incurred by such  Office  Holder or imposed on
                           him by a court,  in a proceeding  brought against him
                           by or on behalf of the Company or by another  person,
                           or  in   criminal   proceeding   from  which  he  was
                           acquitted,  in each case by reason of an action taken
                           by him in his capacity as an Office Holder.

         (d)      The Company may (i) procure  insurance  for, or indemnify  any
                  Office Holder to the extent not  prohibited  by, any provision
                  of applicable law,  provided that, the procurement of any such
                  insurance  or provision  of any such  indemnification,  as the
                  case  may  be,  is  approved  by the  Audit  Committee  of the
                  Company;  and (ii)  procure  insurance  for or  indemnify  any
                  person  who  is  not  an  Office  Holder,  including,  without
                  limitation,  any employee,  agent, consultant or contractor of
                  the Company who is not an Office Holder, and the provisions of
                  Articles 70(a), 70(b) and 70(c) above are not intended to, and
                  shall not be construed to, restrict the Company from procuring
                  insurance or indemnifying as set forth in clauses (i) and (ii)
                  of this Article 70(d).

                                   WINDING UP

71.      WINDING UP

         If the Company is wound up, then,  subject to applicable law and to the
         rights of the holders of shares with  special  rights upon  winding up,
         the assets of the Company available for distribution  among the members
         shall be  distributed  to them in  proportion  to the nominal  value of
         their  respective  holdings  of the  shares in  respect  of which  such
         distribution is being made.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1.3
<SEQUENCE>4
<FILENAME>c32537_ex1-3.txt
<TEXT>
                                                                          Ex 1.3


                                    EXHIBIT A

It is hereby resolved to amend the Articles of Association (the "Articles") of
Supercom Ltd. as follows:


to amend Article 70 of the Articles to read as follows:     1.

"SUBJECT TO THE PROVISIONS OF THE STATUTES, THE COMPANY MAY EXEMPT AND RELEASE
ENTIRELY AND IN ADVANCE EACH OFFICE HOLDER FROM LIABILITY TO ANY DAMAGE SUFFERED
AS A RESULT OF HIS BREACH OF THE DUTY OF CARE HE OWES TO THE COMPANY."

to add Article 70A of the Articles as follows:     2.

"(A) SUBJECT TO THE PROVISIONS OF THE STATUTES, THE COMPANY, AS THE BOARD OF
DIRECTORS MAY FROM TIME TO TIME DETERMINE, MAY ENTER INTO AN AGREEMENT FOR THE
INSURANCE OF ALL OR ANY OF THE LIABILITIES OF AN OFFICE HOLDER FOR ANY ACT DONE
BY HIM BY VIRTUE OF BEING AN OFFICE HOLDER, IN RESPECT OF ANY OF THE FOLLOWING:

(I) BREACH OF DUTY OF CARE TOWARDS THE COMPANY OR ANY OTHER PERSON;

(II) BREACH OF FIDUCIARY OBLIGATIONS TOWARDS THE COMPANY, PROVIDED THE OFFICE
HOLDER ACTED IN GOOD FAITH, AND HAD REASONABLE GROUND TO ASSUME THAT THE ACT
WOULD NOT BE TO THE DETRIMENT OF THE COMPANY;

(III) FINANCIAL LIABILITY IMPOSED ON HIM IN FAVOR OF ANOTHER PERSON.

(B) SUBJECT TO THE PROVISIONS OF THE STATUTES, THE COMPANY MAY INDEMNIFY AN
OFFICE HOLDER OF THE COMPANY, POST FACTUM, FOR THE LIABILITY AND EXPENSES SET
FORTH IN PARAGRAPHS (I) AND (II) HEREINAFTER THAT WAS INCURRED BY HIM AS A
RESULT OF AN ACT DONE BY HIM BY VIRTUE OF BEING AN OFFICE HOLDER:

(I) A MONETARY LIABILITY IMPOSED ON HIM IN FAVOR OF ANOTHER PERSON PURSUANT TO A
JUDGMENT, INCLUDING A SETTLEMENT JUDGMENT OR AN ARBITRATOR AWARD APPROVED BY A
COURT;

(II) REASONABLE LITIGATION EXPENSES, INCLUDING ATTORNEY'S FEES, INCURRED BY SUCH
OFFICE HOLDER OR IMPOSED ON HIM BY A COURT, IN A PROCEEDING BROUGHT AGAINST HIM
BY OR ON BEHALF OF THE COMPANY OR BY ANOTHER PERSON OR IN CRIMINAL PROCEEDING
FROM WHICH HE WAS ACQUITTED, OR IN CRIMINAL PROCEEDING FROM WHICH HE WAS
CONVICTED IN A CRIME THAT IS NOT REQUIRED EVIDENCE OF CRIMINAL MENS REA.


<PAGE>

THE COMPANY MAY ALSO UNDERTAKE IN ADVANCE TO INDEMNIFY AN OFFICE HOLDER FOR SUCH
LIABILITY OR EXPENSES, PROVIDED THAT THE UNDERTAKING BE LIMITED TO TYPES OF
EVENTS THAT, IN THE OPINION OF THE BOARD OF DIRECTORS, COULD BE ANTICIPATED AT
THE TIME OF THE UNDERTAKING, AND TO AMOUNTS THAT THE BOARD OF DIRECTORS HAS
DETERMINED TO BE REASONABLE UNDER THE CIRCUMSTANCES OF THE CASE IN QUESTION."

to add a definition to Article 2 of the Articles as follows:     3.

"OFFICE HOLDERS -- SUBJECT TO THE STATUTES, SHALL INCLUDE: DIRECTOR, GENERAL
MANAGER, CHIEF OPERATING OFFICER, DEPUTY GENERAL MANAGER, VICE GENERAL MANAGER,
AND ANY OTHER SIMILAR OFFICE HOLDER NOTWITHSTANDING THE FACT THAT HE MAY HAVE A
DIFFERENT TITLE AND ANY OTHER MANAGER DIRECTLY RESPONSIBLE TO THE GENERAL
MANAGER."

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.1
<SEQUENCE>5
<FILENAME>c32537_ex2-1.txt
<TEXT>
                                                                          Ex 2.1

                                  SUPERCOM Ltd.


            A company (hereinafter the "Company") limited by shrares
                 Incorporated for an indefinitive period of time
                    Under the laws of Israel on July 4, 1988
                            With registered office at
                                 3 Tidhar Street
                                     Raanana
                                     Israel


                               SHARE CERTIFICATE.



Representing in total _______________ordinary shares (the " Shares") , with
nominal value of NIS 0.01 per share of the Company numbered from ___________ up
to ___________.

Each Share of the Company is entitled to one vote at the general meeting of
shareholders of the Company. The annual meeting of the Company is in principle
held once a year, not later than 15 months after the last general meeting.

The authorized share capital of the Company is NIS 265.000 consisting of
26,500,000 Shares. The issued share capital is NIS 129, 068,720 consisting of
12,906,872 fully paid up shares.


[Date]

For and on behalf of the Company.





Eyal Tuchman                                                     Eli Rozen
 Secretary                                                 Chairman Of The Board


ISIN number: IL 0010830961

Common code: 9566198

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>6
<FILENAME>c32537_ex4-1.txt
<TEXT>
                                                                          Ex 4.1

                           Exhibit 4.1 - Option Plan
- --------------------------------------------------------------------------------

                                  SUPERCOM LTD.


                       THE 2003 ISRAELI SHARE OPTION PLAN

   (*IN COMPLIANCE WITH AMENDMENT NO. 132 OF THE ISRAELI TAX ORDINANCE, 2002)


                                       1
<PAGE>

                                TABLE OF CONTENTS

1. PURPOSE OF THE ISOP.........................................................3

2. DEFINITIONS.................................................................3

3. ADMINISTRATION OF THE ISOP..................................................6

4. DESIGNATION OF PARTICIPANTS.................................................7

5. DESIGNATION OF OPTIONS PURSUANT TO SECTION 102 .............................7

6. TRUSTEE.....................................................................8

7. SHARES RESERVED FOR THE ISOP................................................9

8. PURCHASE PRICE..............................................................9

9. ADJUSTMENTS................................................................10

10. TERM AND EXERCISE OF OPTIONS..............................................11

11. VESTING OF OPTIONS........................................................12

12. DIVIDENDS.................................................................13

13. RESTRICTIONS ON ASSIGNABILITY AND SALE OF OPTIONS.........................13

14. EFFECTIVE DATE AND DURATION OF THE ISOP...................................13

15. AMENDMENTS OR TERMINATION.................................................14

16. GOVERNMENT REGULATIONS....................................................14

17. CONTINUANCE OF EMPLOYMENT.................................................14

18. GOVERNING LAW & JURISDICTION..............................................14

19. ARBITRATION...............................................................14

20. TAX CONSEQUENCES..........................................................14

21. NON-EXCLUSIVITY OF THE ISOP...............................................15

22. MULTIPLE AGREEMENTS.......................................................15


                                       2
<PAGE>

      This plan,  as amended  from time to time,  shall be known as Supercom Ltd
      2003 Israeli Share Option Plan (the "ISOP").

1.    PURPOSE OF THE ISOP

      The ISOP is intended to provide an incentive  to retain,  in the employ of
      the Company and its  Affiliates (as defined  below),  persons of training,
      experience, and ability, to attract new employees, directors, consultants,
      service  providers and any other entity which the Board shall decide their
      services are considered valuable to the Company, to encourage the sense of
      proprietorship  of such persons,  and to stimulate the active  interest of
      such persons in the  development  and financial  success of the Company by
      providing  them with  opportunities  to  purchase  shares in the  Company,
      pursuant to the ISOP.

2.    DEFINITIONS

      For  purposes  of the ISOP and  related  documents,  including  the Option
      Agreement, the following definitions shall apply:

      2.1   "AFFILIATE"  means any  "employing  company"  within the  meaning of
            Section 102(a) of the Ordinance.

      2.2   "APPROVED  102 OPTION" means an Option  granted  pursuant to Section
            102(b)  of the  Ordinance  and held in trust  by a  Trustee  for the
            benefit of the Optionee.

      2.3   "BOARD" means the Board of Directors of the Company.

      2.4   "CAPITAL GAIN OPTION (CGO)" as defined in Section 5.4 below.

      2.5   "CAUSE"  means,   (i)  conviction  of  any  felony  involving  moral
            turpitude or affecting the Company;  (ii) any refusal to carry out a
            reasonable  directive of the chief executive  officer,  the Board or
            the Optionee's direct supervisor, which involves the business of the
            Company  or  its  Affiliates  and  was  capable  of  being  lawfully
            performed;  (iii)  embezzlement  of  funds  of  the  Company  or its
            Affiliates;  (iv) any breach of the Optionee's  fiduciary  duties or
            duties  of  care  of  the  Company;   including  without  limitation
            disclosure of confidential  information of the Company;  and (v) any
            conduct (other than conduct in good faith) reasonably  determined by
            the Board to be materially detrimental to the Company.

      2.6   "CHAIRMAN" means the chairman of the Committee.

      2.7   "COMMITTEE" means a share option compensation committee appointed by
            the Board,  which shall  consist of no fewer than two members of the
            Board.

      2.8   "COMPANY" means Supercom Ltd, an Israeli company.

      2.9   "COMPANIES LAW" means the Israeli Companies Law 5759-1999.

      2.10  "CONTROLLING  SHAREHOLDER"  shall have the meaning ascribed to it in
            Section 32(9) of the Ordinance.


                                       3
<PAGE>

      2.11  "DATE OF GRANT" means, the date of grant of an Option, as determined
            by the Board and set forth in the Optionee's Option Agreement.

      2.12  EMPLOYEE"  means a person  who is  employed  by the  Company  or its
            Affiliates,  including an individual who is serving as a director or
            an office holder, but excluding Controlling Shareholder.

      2.13  "EXPIRATION  DATE" means the date upon which an Option shall expire,
            as set forth in Section 10.2 of the ISOP.

      2.14  "FAIR  MARKET  VALUE"  means as of any  date,  the  value of a Share
            determined as follows:

            (i) If the Shares are listed on any established  stock exchange or a
            national market system,  including without  limitation the Euronext,
            the NASDAQ National Market system,  or the NASDAQ SmallCap Market of
            the NASDAQ Stock Market,  the Fair Market Value shall be the closing
            sales price for such  Shares (or the  closing  bid, if no sales were
            reported),  as quoted on such exchange or system for the last market
            trading day prior to time of determination,  as reported in the Wall
            Street Journal, or such other source as the Board deems reliable.

            Without  derogating  from  the  above,  solely  for the  purpose  of
            determining the tax liability  pursuant to Section  102(b)(3) of the
            Ordinance,  if at the Date of Grant the Company's  shares are listed
            on any established  stock exchange or a national market system or if
            the Company's  shares will be registered  for trading  within ninety
            (90) days  following  the Date of Grant,  the Fair Market Value of a
            Share at the Date of Grant shall be determined  in  accordance  with
            the average value of the Company's shares on the thirty (30) trading
            days  preceding the Date of Grant or on the thirty (30) trading days
            following the date of registration for trading, as the case may be;

            (ii) If the Shares are regularly  quoted by a recognized  securities
            dealer but selling  prices are not  reported,  the Fair Market Value
            shall be the mean  between the high bid and low asked prices for the
            Shares  on  the  last  market  trading  day  prior  to  the  day  of
            determination, or;

            (iii) In the absence of an  established  market for the Shares,  the
            Fair Market Value  thereof  shall be determined in good faith by the
            Board.

      2.15  "ISOP" means this 2003 Israeli Share Option Plan.

      2.16  "ITA" means the Israeli Tax Authorities.

      2.17  "NON-EMPLOYEE"  means  a  consultant,   adviser,  service  provider,
            Controlling Shareholder or any other person who is not an Employee.

      2.18  "ORDINARY INCOME OPTION (OIO)" as defined in Section 5.5 below.

      2.19  "OPTION"  means an  option  to  purchase  one or more  Shares of the
            Company pursuant to the ISOP.


                                       4
<PAGE>

      2.20  "102  OPTION"  means any Option  granted to  Employees  pursuant  to
            Section 102 of the Ordinance.

      2.21  "3(I)  OPTION" means an Option  granted  pursuant to Section 3(i) of
            the Ordinance to any person who is Non- Employee.

      2.22  "OPTIONEE"  means a person who receives or holds an Option under the
            ISOP.

      2.23  "OPTION  AGREEMENT"  means the share  option  agreement  between the
            Company and an Optionee that sets out the terms and conditions of an
            Option.

      2.24  "ORDINANCE"  means  the  1961  Israeli  Income  Tax  Ordinance  [New
            Version] 1961 as now in effect or as hereafter amended.

      2.25  "PURCHASE  PRICE"  means  the  price for each  Share  subject  to an
            Option.

      2.26  "SECTION 102" means section 102 of the Ordinance as now in effect or
            as hereafter amended.

      2.27  "SHARE" means the ordinary  shares,  NIS 0.01 par value each, of the
            Company.

      2.28  "SUCCESSOR  COMPANY" means any entity the Company is merged to or is
            acquired by, in which the Company is not the surviving entity.

      2.29  "TRANSACTION" means (i) merger, acquisition or reorganization of the
            Company with one or more other  entities in which the Company is not
            the surviving entity, (ii) a sale of all or substantially all of the
            assets of the Company.

      2.30  "TRUSTEE" means any individual  appointed by the Company to serve as
            a  trustee  and  approved  by the ITA,  all in  accordance  with the
            provisions of Section 102(a) of the Ordinance.

      2.31  "UNAPPROVED 102 OPTION" means an Option granted  pursuant to Section
            102(c) of the Ordinance and not held in trust by a Trustee.

      2.32  "VESTED  OPTION"  means any Option,  which has  already  been vested
            according to the Vesting Dates.

      2.33  "VESTING  DATES"  means,  as  determined  by  the  Board  or by  the
            Committee,  the date as of which the  Optionee  shall be entitled to
            exercise the Options or part of the Options, as set forth in section
            11 of the ISOP.


                                       5
<PAGE>

3.    ADMINISTRATION OF THE ISOP

      3.1   The  Board  shall  have the  power  to  administer  the ISOP  either
            directly  or  upon  the  recommendation  of  the  Committee,  all as
            provided  by  applicable  law  and  in  the  Company's  Articles  of
            Association.    Notwithstanding   the   above,   the   Board   shall
            automatically  have  residual  authority  if no  Committee  shall be
            constituted  or if such  Committee  shall  cease to operate  for any
            reason.

      3.2   The  Committee  shall  select one of its members as its Chairman and
            shall hold its  meetings  at such  times and places as the  Chairman
            shall  determine.  The Committee  shall keep records of its meetings
            and shall make such  rules and  regulations  for the  conduct of its
            business as it shall deem advisable.

      3.3   The Committee shall have the power to recommend to the Board and the
            Board  shall have the full  power and  authority  to: (i)  designate
            participants;  (ii)  determine  the  terms  and  provisions  of  the
            respective  Option  Agreements,  including,  but not limited to, the
            number of  Options to be  granted  to each  Optionee,  the number of
            Shares to be covered by each Option,  provisions concerning the time
            and the extent to which the Options may be exercised  and the nature
            and  duration  of   restrictions  as  to  the   transferability   or
            restrictions  constituting  substantial  risk of  forfeiture  and to
            cancel or suspend  awards,  as necessary;  (iii)  determine the Fair
            Market  Value of the  Shares  covered by each  Option;  (iv) make an
            election as to the type of 102 Approved  Option;  and (v)  designate
            the type of Options.

            The Committee  shall have full power and authority to :(i) alter any
            restrictions  and conditions of any Options or Shares subject to any
            Options  (ii)   interpret   the   provisions   and   supervise   the
            administration  of  the  ISOP;  (iii)  accelerate  the  right  of an
            Optionee  to exercise in whole or in part,  any  previously  granted
            Option;  (iv)  determine  the  Purchase  Price  of the  Option;  (v)
            prescribe,  amend and rescind rules and regulations  relating to the
            ISOP;  and (vi) make all other  determinations  deemed  necessary or
            advisable for the administration of the ISOP.

      3.4   Notwithstanding  the above,  the Committee  shall not be entitled to
            grant Options to the  Optionees,  however,  it will be authorized to
            issue Shares underlying Options which have been granted by the Board
            and duly exercised  pursuant to the provisions  herein in accordance
            with section 112(a)(5) of the Companies Law.

      3.5   The Board shall have the authority to grant, at its  discretion,  to
            the holder of an outstanding  Option,  in exchange for the surrender
            and  cancellation  of such  Option,  a new Option  having a purchase
            price equal to, lower than or higher than the Purchase  Price of the
            original  Option so  surrendered  and canceled and  containing  such
            other  terms  and  conditions  as the  Committee  may  prescribe  in
            accordance with the provisions of the ISOP.


                                       6
<PAGE>

      3.6   Subject to the Company's Articles of Association,  all decisions and
            selections  made  by the  Board  or the  Committee  pursuant  to the
            provisions  of the ISOP shall be made by a majority  of its  members
            except that no member of the Board or the  Committee  shall vote on,
            or be counted  for quorum  purposes,  with  respect to any  proposed
            action of the Board or the  Committee  relating  to any Option to be
            granted to that  member.  Any decision  reduced to writing  shall be
            executed in accordance with the provisions of the Company's Articles
            of Association, as the same may be in effect from time to time.

      3.7   The   interpretation  and  construction  by  the  Committee  of  any
            provision of the ISOP or of any Option Agreement thereunder shall be
            final and conclusive unless otherwise determined by the Board.

      3.8   Subject to the Company's  Articles of Association  and the Company's
            decision, and to all approvals legally required,  including, but not
            limited to the  provisions of the Companies  Law, each member of the
            Board or the Committee shall be indemnified and held harmless by the
            Company  against  any  cost  or  expense  (including  counsel  fees)
            reasonably incurred by him, or any liability (including any sum paid
            in settlement  of a claim with the approval of the Company)  arising
            out of any act or omission to act in connection with the ISOP unless
            arising out of such  member's own fraud or bad faith,  to the extent
            permitted  by  applicable  law.  Such  indemnification  shall  be in
            addition to any rights of  indemnification  the member may have as a
            director or otherwise  under the Company's  Articles of Association,
            any agreement,  any vote of shareholders or disinterested directors,
            insurance policy or otherwise.

4.    DESIGNATION OF PARTICIPANTS

      4.1   The persons  eligible  for  participation  in the ISOP as  Optionees
            shall include any Employees  and/or  Non-Employees of the Company or
            of any Affiliate;  provided, however, that (i) Employees may only be
            granted 102  Options;  (ii)  Non-Employees  may only be granted 3(i)
            Options; and (iii) Controlling Shareholders may only be granted 3(i)
            Options.

      4.2   The grant of an Option  hereunder shall neither entitle the Optionee
            to participate  nor disqualify the Optionee from  participating  in,
            any other grant of Options  pursuant to the ISOP or any other option
            or share plan of the Company or any of its Affiliates.

      4.3   Anything in the ISOP to the contrary notwithstanding,  all grants of
            Options to directors  and office  holders  shall be  authorized  and
            implemented  in accordance  with the provisions of the Companies Law
            or any successor act or regulation, as in effect from time to time.

5.    DESIGNATION OF OPTIONS PURSUANT TO SECTION 102

      5.1   The Company may designate  Options granted to Employees  pursuant to
            Section 102 as Unapproved 102 Options or Approved 102 Options.

      5.2   The grant of  Approved  102  Options  shall be made  under this ISOP
            adopted by the Board as described in Section 15 below,  and shall be
            conditioned upon the approval of this ISOP by the ITA.


                                       7
<PAGE>

      5.3   Approved 102 Option may either be  classified as Capital Gain Option
            ("CGO") or Ordinary Income Option ("OIO").

      5.4   Approved 102 Option elected and designated by the Company to qualify
            under  the  capital  gain  tax  treatment  in  accordance  with  the
            provisions of Section 102(b)(2) shall be referred to herein as CGO.

      5.5   Approved 102 Option elected and designated by the Company to qualify
            under the  ordinary  income tax  treatment  in  accordance  with the
            provisions of Section 102(b)(1) shall be referred to herein as OIO.

      5.6   The Company's election of the type of Approved 102 Options as CGO or
            OIO granted to Employees (the  "ELECTION"),  shall be  appropriately
            filed  with the ITA  before  the Date of  Grant of an  Approved  102
            Option.  Such Election  shall become  effective  beginning the first
            Date of Grant of an  Approved  102 Option  under this ISOP and shall
            remain in effect until the end of the year following the year during
            which the Company first granted  Approved 102 Options.  The Election
            shall  obligate  the Company to grant ONLY the type of Approved  102
            Option it has  elected,  and shall apply to all  Optionees  who were
            granted Approved 102 Options during the period indicated herein, all
            in  accordance   with  the  provisions  of  Section  102(g)  of  the
            Ordinance.  For the  avoidance  of doubt,  such  Election  shall not
            prevent   the  Company   from   granting   Unapproved   102  Options
            simultaneously.

      5.7   All  Approved  102  Options  must be held in trust by a Trustee,  as
            described in Section 6 below.

      5.8   For the  avoidance  of doubt,  the  designation  of  Unapproved  102
            Options and Approved  102 Options  shall be subject to the terms and
            conditions  set  forth  in  Section  102 of the  Ordinance  and  the
            regulations promulgated thereunder.

      5.9   With  regards to Approved 102 Options,  the  provisions  of the ISOP
            and/or the Option  Agreement  shall be subject to the  provisions of
            Section 102 and the Tax  Assessing  Officer's  permit,  and the said
            provisions  and permit shall be deemed an integral  part of the ISOP
            and of the Option Agreement. Any provision of Section 102 and/or the
            said permit which is  necessary  in order to receive  and/or to keep
            any tax benefit  pursuant  to Section  102,  which is not  expressly
            specified in the ISOP or the Option  Agreement,  shall be considered
            binding upon the Company and the Optionees.

6.    TRUSTEE

      6.1   Approved  102 Options  which shall be granted  under the ISOP and/or
            any Shares  allocated or issued upon  exercise of such  Approved 102
            Options  and/or other shares  received  subsequently  following  any
            realization of rights,  including  without  limitation bonus shares,
            shall be allocated or issued to the Trustee and held for the benefit
            of the  Optionees for such period of time as required by Section 102
            or any  regulations,  rules  or  orders  or  procedures  promulgated
            thereunder (the "HOLDING PERIOD").  In the case the requirements for
            Approved  102 Options  are not met,  then the  Approved  102 Options
            shall be treated as Unapproved 102 Options,  all in accordance  with
            the   provisions   of  Section  102  and   regulations   promulgated
            thereunder.


                                       8
<PAGE>

      6.2   Notwithstanding  anything to the  contrary,  the  Trustee  shall not
            release any Shares allocated or issued upon exercise of Approved 102
            Options prior to the full payment of the Optionee's tax  liabilities
            arising from  Approved 102 Options  which were granted to him and/or
            any Shares allocated or issued upon exercise of such Options.

      6.3   With respect to any Approved 102 Option,  subject to the  provisions
            of Section 102 and any rules or  regulation  or orders or procedures
            promulgated  thereunder,  an  Optionee  shall not be sell or release
            from trust any Share  received  upon the exercise of an Approved 102
            Option  and/or  any  share  received   subsequently   following  any
            realization of rights,  including without limitation,  bonus shares,
            until the lapse of the Holding Period  required under Section 102 of
            the  Ordinance.  Notwithstanding  the  above,  if any  such  sale or
            release  occurs  during the  Holding  Period,  the  sanctions  under
            Section 102 of the  Ordinance  and under any rules or  regulation or
            orders or procedures promulgated thereunder shall apply to and shall
            be borne by such Optionee.

      6.4   Upon  receipt of Approved  102  Option,  the  Optionee  will sign an
            undertaking  to release the Trustee from any liability in respect of
            any action or decision duly taken and bona fide executed in relation
            with the ISOP,  or any Approved  102 Option or Share  granted to him
            thereunder.

7.    SHARES RESERVED FOR THE ISOP; RESTRICTION THEREON

      7.1   The Company has reserved  1,000,000  (one  million)  authorized  but
            unissued  Shares,  for the purposes of the ISOP and for the purposes
            of any other share  option plans which may be adopted by the Company
            in the  future,  subject  to  adjustment  as set forth in  Section 9
            below. Any Shares which remain unissued and which are not subject to
            the  outstanding  Options at the termination of the ISOP shall cease
            to be reserved for the purpose of the ISOP, but until termination of
            the ISOP the Company shall at all times reserve sufficient number of
            Shares to meet the  requirements of the ISOP.  Should any Option for
            any  reason  expire  or  be  canceled   prior  to  its  exercise  or
            relinquishment  in full, the Shares subject to such Option may again
            be  subjected  to an Option  under  the ISOP or under the  Company's
            other share option plans.

      7.2   Each Option  granted  pursuant to the ISOP,  shall be evidenced by a
            written Option  Agreement  between the Company and the Optionee,  in
            such  form as the  Board or the  Committee  shall  from time to time
            approve. Each Option Agreement shall state, among other matters, the
            number of Shares to which  the  Option  relates,  the type of Option
            granted thereunder  (whether a CGO, OIO,  Unapproved 102 Option or a
            3(i) Option),  the Vesting Dates,  the Purchase Price per share, the
            Expiration Date and such other terms and conditions as the Committee
            or the Board in its discretion may prescribe, provided that they are
            consistent with this ISOP.

8.    PURCHASE  PRICE

      8.1   The  Purchase  Price of each  Share  subject  to an Option  shall be
            determined by the  Committee in its sole and absolute  discretion in
            accordance with applicable law,  subject to any guidelines as may be
            determined  by the Board from time to time.  Each  Option  Agreement
            will contain the Purchase Price determined for each Optionee.


                                       9
<PAGE>

      8.2   The Purchase  Price shall be payable upon the exercise of the Option
            in  a  form   satisfactory  to  the  Committee,   including  without
            limitation, by cash or check. The Committee shall have the authority
            to postpone the date of payment on such terms as it may determine.

      8.3   The  Purchase  Price  shall be  denominated  in the  currency of the
            primary economic  environment of, either the Company or the Optionee
            (that is the  functional  currency of the Company or the currency in
            which the Optionee is paid) as determined by the Company.

9.    ADJUSTMENTS

      Upon the occurrence of any of the following  described events,  Optionee's
      rights to purchase  Shares  under the ISOP shall be adjusted as  hereafter
      provided:

      9.1   In  the  event  of  Transaction,   the   unexercised   Options  then
            outstanding  under the ISOP shall be assumed or  substituted  for an
            appropriate  number  of  shares  of each  class of  shares  or other
            securities  of the  Successor  Company (or a parent or subsidiary of
            the Successor  Company) as were  distributed to the  shareholders of
            the Company in connection  and with respect to the  Transaction.  In
            the  case  of  such  assumption  and/or   substitution  of  Options,
            appropriate adjustments shall be made to the Purchase Price so as to
            reflect such action and all other terms and conditions of the Option
            Agreements shall remain unchanged,  including but not limited to the
            vesting schedule,  all subject to the determination of the Committee
            or the Board, which  determination shall be in their sole discretion
            and final.  The Company shall notify the Optionee of the Transaction
            in such  form and  method as it deems  applicable  at least ten (10)
            days prior to the effective date of such Transaction.

      9.2   Notwithstanding  the above and subject to any  applicable  law,  the
            Board or the  Committee  shall  have  full  power and  authority  to
            determine that in certain Option  Agreements there shall be a clause
            instructing that, if in any such Transaction as described in section
            9.1 above,  the  Successor  Company (or parent or  subsidiary of the
            Successor  Company) does not agree to assume or  substitute  for the
            Options, the Vesting Dates shall be accelerated so that any unvested
            Option or any portion thereof shall be immediately  vested as of the
            date  which is ten (10)  days  prior  to the  effective  date of the
            Transaction.

      9.3   For the purposes of section 9.1 above, an Option shall be considered
            assumed or substituted  if,  following the  Transaction,  the Option
            confers the right to purchase or receive,  for each Share underlying
            an Option  immediately  prior to the Transaction,  the consideration
            (whether  shares,  options,  cash, or other  securities or property)
            received  in the  Transaction  by  holders  of  shares  held  on the
            effective date of the Transaction  (and if such holders were offered
            a choice of consideration,  the type of consideration  chosen by the
            holders of a majority of the outstanding shares); provided, however,
            that if such consideration received in the Transaction is not solely
            ordinary  shares (or their  equivalent) of the Successor  Company or
            its parent or subsidiary, the Committee may, with the consent of the
            Successor Company, provide for the consideration to be received upon
            the  exercise of the Option to be solely  ordinary  shares (or their
            equivalent)  of the  Successor  Company or its parent or  subsidiary
            equal in Fair Market Value to the per Share  consideration  received
            by  holders  of  a  majority  of  the  outstanding   shares  in  the
            Transaction;  and provided further that the Committee may determine,
            in its  discretion,  that in lieu of such assumption or substitution
            of Options  for  options of the  Successor  Company or its parent or


                                       10
<PAGE>

            subsidiary,  such Options will be substituted  for any other type of
            asset  or   property   including   cash  which  is  fair  under  the
            circumstances.

      9.4   If  the  Company  is  voluntarily   liquidated  or  dissolved  while
            unexercised  Options remain  outstanding under the ISOP, the Company
            shall  immediately  notify all  unexercised  Option  holders of such
            liquidation, and the Option holders shall then have ten (10) days to
            exercise any unexercised Vested Option held by them at that time, in
            accordance  with the exercise  procedure set forth herein.  Upon the
            expiration  of  such  ten-days  period,  all  remaining  outstanding
            Options will terminate immediately.

      9.5   If the  outstanding  shares  of the  Company  shall  at any  time be
            changed or  exchanged  by  declaration  of a share  dividend  (bonus
            shares),   share   split,   combination   or   exchange  of  shares,
            recapitalization,  or any other like event by or of the Company, and
            as often as the same shall occur, then the number, class and kind of
            the Shares  subject to the ISOP or subject to any Options  therefore
            granted,  and  the  Purchase  Prices,  shall  be  appropriately  and
            equitably  adjusted so as to maintain  the  proportionate  number of
            Shares  without  changing the aggregate  Purchase  Price,  provided,
            however,  that  no  adjustment  shall  be  made  by  reason  of  the
            distribution of subscription rights (rights offering) on outstanding
            shares.  Upon  happening  of any of the  foregoing,  the  class  and
            aggregate  number of Shares  issuable  pursuant  to the ISOP (as set
            forth in Section 7 hereof), in respect of which Options have not yet
            been  exercised,  shall be  appropriately  adjusted,  all as will be
            determined by the Board whose determination shall be final.

10.   TERM AND EXERCISE OF OPTIONS

      10.1  Options shall be exercised by the Optionee by giving  written notice
            to the Company  and/or to any third party  designated by the Company
            (the "REPRESENTATIVE"), in such form and method as may be determined
            by the Company  and when  applicable,  by the Trustee in  accordance
            with the  requirements  of  Section  102,  which  exercise  shall be
            effective  upon  receipt of such  notice by the  Company  and/or the
            Representative  and  the  payment  of  the  Purchase  Price  at  the
            Company's or the Representative's principal office. The notice shall
            specify  the  number of Shares  with  respect to which the Option is
            being exercised.

      10.2  Options,  to the extent not previously  exercised,  shall  terminate
            forthwith  upon the earlier of: (i) the date set forth in the Option
            Agreement;  and (ii) the expiration of any extended period in any of
            the events set forth in section 10.5 below.

      10.3  The Options may be exercised by the Optionee in whole at any time or
            in part from time to time,  to the extent  that the  Options  become
            vested and  exercisable,  prior to the Expiration Date, and provided
            that,  subject to the provisions of section 10.5 below, the Optionee
            is  employed by or  providing  services to the Company or any of its
            Affiliates,  at all  times  during  the  period  beginning  with the
            granting of the Option and ending upon the date of exercise.

      10.4  Subject to the  provisions  of section  10.5 below,  in the event of
            termination of Optionee's  employment or services,  with the Company
            or any of its Affiliates,  all Options granted to such Optionee will
            immediately expire. A notice of termination of employment or service
            shall be deemed to constitute  termination of employment or service.
            For  the  avoidance  of  doubt,  in  case


                                       11
<PAGE>

            of such  termination of employment or service,  the unvested portion
            of the  Optionee's  Option  shall  not vest  and  shall  not  become
            exercisable.

      10.5  Notwithstanding  anything  to the  contrary  hereinabove  and unless
            otherwise  determined in the Optionee's Option Agreement,  an Option
            may be  exercised  after  the  date  of  termination  of  Optionee's
            employment or service with the Company or any  Affiliates  during an
            additional period of time beyond the date of such  termination,  but
            only with  respect  to the  number of Vested  Options at the time of
            such termination according to the Vesting Dates, if:

            (i)   termination is without Cause, in which event any Vested Option
                  still in force and unexpired may be exercised  within a period
                  of ninety (90) days after the date of such termination; or-

            (ii)  termination  is the  result  of  death  or  disability  of the
                  Optionee,  in which event any Vested Option still in force and
                  unexpired may be exercised within a period of three (3) months
                  after the date of such termination; or -

            (iii) prior to the date of such  termination,  the  Committee  shall
                  authorize  an  extension  of the  terms  of all or part of the
                  Vested  Options  beyond  the  date of such  termination  for a
                  period not to exceed the period  during  which the  Options by
                  their terms would otherwise have been exercisable.

            For avoidance of any doubt,  if termination of employment or service
            is for Cause, any outstanding  unexercised Option (whether vested or
            non-vested), will immediately expire and terminate, and the Optionee
            shall not have any right in connection to such outstanding Options.

      10.6  To avoid doubt,  the  Optionees  shall not have any of the rights or
            privileges of  shareholders  of the Company in respect of any Shares
            purchasable  upon the  exercise  of any  Option,  nor shall  they be
            deemed to be a class of shareholders or creditors of the Company for
            purpose of the  operation of sections  350 and 351 of the  Companies
            Law or any  successor to such  section,  until  registration  of the
            Optionee  as holder  of such  Shares in the  Company's  register  of
            shareholders  upon  exercise  of the Option in  accordance  with the
            provisions  of the ISOP,  but in case of Options  and Shares held by
            the Trustee, subject to the provisions of Section 6 of the ISOP.

      10.7  Any form of Option Agreement authorized by the ISOP may contain such
            other  provisions  as the  Committee  may,  from time to time,  deem
            advisable.

      10.8  With respect to Unapproved 102 Option,  if the Optionee ceases to be
            employed by the Company or any Affiliate,  the Optionee shall extend
            to the Company  and/or its Affiliate a security or guarantee for the
            payment of tax due at the time of sale of Shares,  all in accordance
            with the  provisions  of Section  102 and the rules,  regulation  or
            orders promulgated thereunder.

11.   VESTING OF OPTIONS

      11.1  Subject  to the  provisions  of the ISOP,  each  Option  shall  vest
            following the Vesting Dates and for the number of Shares as shall be
            provided  in the  Option  Agreement.  However,  no  Option  shall be
            exercisable after the Expiration Date.


                                       12
<PAGE>

      11.2  An Option may be subject to such other terms and  conditions  on the
            time or times when it may be  exercised,  as the  Committee may deem
            appropriate. The vesting provisions of individual Options may vary.

12.   DIVIDENDS

      With respect to all Shares (but excluding, for avoidance of any doubt, any
      unexercised  Options)  allocated  or issued  upon the  exercise of Options
      purchased by the  Optionee and held by the Optionee or by the Trustee,  as
      the case may be, the  Optionee  shall be entitled to receive  dividends in
      accordance with the quantity of such Shares,  subject to the provisions of
      the Company's  Articles of Association  (and all  amendments  thereto) and
      subject to any applicable taxation on distribution of dividends,  and when
      applicable  subject  to the  provisions  of  Section  102 and  the  rules,
      regulations or orders promulgated thereunder.

13.   RESTRICTIONS ON ASSIGNABILITY AND SALE OF OPTIONS

      13.1  No Option or any right with respect thereto,  purchasable hereunder,
            whether  fully paid or not,  shall be  assignable,  transferable  or
            given as  collateral  or any right  with  respect to it given to any
            third party  whatsoever,  except as  specifically  allowed under the
            ISOP,  and during the lifetime of the Optionee  each and all of such
            Optionee's  rights to purchase Shares hereunder shall be exercisable
            only by the Optionee.

            Any such  action  made  directly  or  indirectly,  for an  immediate
            validation or for a future one, shall be void.

      13.2  As long as Options  and/or  Shares are held by the Trustee on behalf
            of the  Optionee,  all  rights of the  Optionee  over the Shares are
            personal,  can not be transferred,  assigned,  pledged or mortgaged,
            other  than  by  will  or  pursuant  to  the  laws  of  descent  and
            distribution.

14.   EFFECTIVE DATE AND DURATION OF THE ISOP

      The ISOP shall be  effective as of the day it was adopted by the Board and
      shall terminate at the end of ten (10) years from such day of adoption.

      The Company  shall obtain the approval of the Company's  shareholders  for
      the  adoption  of  this  ISOP  or for  any  amendment  to  this  ISOP,  if
      shareholders'  approval  is  necessary  or  desirable  to comply  with any
      applicable law including  without  limitation the US securities law or the
      securities  laws of other  jurisdiction  applicable to Options  granted to
      Optionees under this ISOP, or if shareholders' approval is required by any
      authority or by any governmental agencies or national securities exchanges
      including without limitation the US Securities and Exchange Commission.


                                       13
<PAGE>

15.   AMENDMENTS OR TERMINATION

      The Board may at any time, but when applicable,  after  consultation  with
      the Trustee,  amend,  alter,  suspend or terminate the ISOP. No amendment,
      alteration,  suspension or termination of the ISOP shall impair the rights
      of any Optionee, unless mutually agreed otherwise between the Optionee and
      the Company, which agreement must be in writing and signed by the Optionee
      and the Company.  Termination of the ISOP shall not affect the Committee's
      ability to exercise  the powers  granted to it  hereunder  with respect to
      Options granted under the ISOP prior to the date of such termination.

16.   GOVERNMENT REGULATIONS

      The ISOP,  and the  granting and  exercise of Options  hereunder,  and the
      obligation  of the Company to sell and deliver  Shares under such Options,
      shall be subject to all applicable laws,  rules, and regulations,  whether
      of the State of Israel or of the State of Belgium or of the United  States
      or any other State having  jurisdiction over the Company and the Optionee,
      including  the  registration  of the Shares  under the  securities  act of
      Belgium and/or the United States Securities Act of 1933, and the Ordinance
      and to such approvals by any governmental  agencies or national securities
      exchanges  as may be required.  Nothing  herein shall be deemed to require
      the  Company to  register  the  Shares  under the  securities  laws of any
      jurisdiction.

17.   CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES

      Neither the ISOP nor the Option  Agreement  with the Optionee shall impose
      any  obligation  on the Company or an Affiliate  thereof,  to continue any
      Optionee  in its  employ or  service,  and  nothing  in the ISOP or in any
      Option granted  pursuant  thereto shall confer upon any Optionee any right
      to  continue  in the  employ or service  of the  Company  or an  Affiliate
      thereof or restrict  the right of the Company or an  Affiliate  thereof to
      terminate such employment or service at any time.

18.   GOVERNING LAW & JURISDICTION

      The ISOP shall be governed by and  construed  and  enforced in  accordance
      with the laws of the State of Israel  applicable to contracts  made and to
      be performed therein,  without giving effect to the principles of conflict
      of laws.  The  competent  courts  of  Tel-Aviv,  Israel  shall  have  sole
      jurisdiction in any matters pertaining to the ISOP.

19.   ARBITRATION

      Any  dispute  in  relation  with  this  ISOP and the  exercise  of  rights
      thereunder,  shall be brought to  arbitration  of the legal counsel to the
      Company ("THE ARBITRATOR"), who shall decide on such dispute in accordance
      with the provisions of the Arbitration Law - 1968 and its supplement.  The
      decision of the  Arbitrator  shall be final and shall bind the Company and
      the Optionee.

20.   TAX CONSEQUENCES

      20.1  Any tax  consequences  arising  from the  grant or  exercise  of any
            Option,  from the  payment  for Shares  covered  thereby or from any
            other  event  or act (of the  Company  and/or  its  Affiliates,  the
            Trustee or the  Optionee),  hereunder,  shall be borne solely by the
            Optionee. The Company and/or its Affiliates and/or the Trustee shall
            withhold taxes  according to the  requirements  under


                                       14
<PAGE>

            the applicable laws, rules, and regulations,  including  withholding
            taxes at source. Furthermore,  the Optionee shall agree to indemnify
            the Company and/or its  Affiliates  and/or the Trustee and hold them
            harmless  against and from any and all liability for any such tax or
            interest  or  penalty   thereon,   including   without   limitation,
            liabilities  relating  to the  necessity  to  withhold,  or to  have
            withheld, any such tax from any payment made to the Optionee.

      20.2  The  Company  and/or,  when  applicable,  the  Trustee  shall not be
            required to release any Share  certificate  to an Optionee until all
            required payments have been fully made.

21.   NON-EXCLUSIVITY OF THE ISOP

      The  adoption of the ISOP by the Board shall not be construed as amending,
      modifying or rescinding any previously approved incentive  arrangements or
      as creating any  limitations on the power of the Board to adopt such other
      incentive  arrangements  as it  may  deem  desirable,  including,  without
      limitation,  the granting of Options  otherwise  than under the ISOP,  and
      such arrangements may be either  applicable  generally or only in specific
      cases.

      For the  avoidance  of doubt,  prior grant of options to  Optionees of the
      Company under their employment agreements, and not in the framework of any
      previous  option  plan,   shall  not  be  deemed  an  approved   incentive
      arrangement for the purpose of this Section.

22.   MULTIPLE AGREEMENTS

      The terms of each Option may differ from other  Options  granted under the
      ISOP at the same time, or at any other time. The Board may also grant more
      than one Option to a given Optionee during the term of the ISOP, either in
      addition  to,  or in  substitution  for,  one or more  Options  previously
      granted to that Optionee.


                                      * * *


                                       15

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>7
<FILENAME>c32537_ex4-2.txt
<TEXT>
                                                                          Ex 4.2

                              EMPLOYMENT AGREEMENT

THIS  EMPLOYMENT  AGREEMENT (the  "AGREEMENT")  is entered into as of the May 5,
2002, by and between  Supercom Ltd. (the "COMPANY") and Mr. Avi Schechter,  I.D.
number 059682526 (the "Employee").

WHEREAS,  the Company  desires to employ the  Employee as CEO of the Company and
the Employee desires to enter into such employment,  on the terms and conditions
hereinafter set forth.

NOW,  THEREFORE,  in  consideration  of the respective  agreement of the parties
contained herein, the parties agree as follows:

1.       TERM

         The term of employment under this Agreement shall commence on 17.3.2002
         (the "EFFECTIVE DATE").

2.       EMPLOYMENT

         (a)      The  Employee  shall be  employed as CEO of the  Company.  The
                  Employee    shall   perform   the   duties,    undertake   the
                  responsibilities   and  exercise  the  authority   customarily
                  performed,  undertaken and exercised by persons  situated in a
                  similar capacity.

         (b)      The  Employee  shall  be in  charge  of the  operation  of the
                  Company  and,  subject  to  the  decisions  of  the  board  of
                  directors  of  the  Company,  shall  have  full  autonomy  and
                  authority in all  developments  methods,  marketing and sales,
                  business  development,  strategic  partnerships  and  manpower
                  subjects and all other related issues (IR, PR etc.), Excluding
                  investment policy/actions in the Company of which the Employee
                  shall be  instructed  by and subject to the board of directors
                  of the Company.

         (c)      Excluding  periods  of  vacation  and sick  leave to which the
                  Employee is entitled hereunder,  the Employee agrees to devote
                  total  attention,  full time,  at his  working  hours,  to the
                  business  and affairs of the Company as required to  discharge
                  the responsibilities  assigned to the Employee hereunder.  The
                  Employee's  duties shall be in the nature of management duties
                  that demand a special level of loyalty and accordingly the Law
                  of  Work  Hours  and  Rest - 1951  shall  not  apply  to  this
                  Agreement.  During  the term of this  Agreement  the  Employee
                  shall not be engaged in any other employment nor engage in any
                  other  business  activities  for  any  other  person,  firm or
                  company without the prior written consent of the Company.

         (d)      The  Employee  warrants  that  in view  of his  position,  his
                  agreement  with the Company is a personal  agreement  and this
                  Agreement will  accordingly  not be governed by any collective
                  agreement and/or various  extension  orders,  unless expressly
                  provided otherwise herein.


<PAGE>


         (e)      The  Company  shall  purchase  and  maintain a  directors  and
                  officers  liability  insurance  in the  name  of the  Company,
                  covering all the  Employee's  duties under this  Agreement and
                  subject to any applicable law.

3.       BASE SALARV

         The Company  agrees to pay or cause to be paid to the  Employee  during
         the term of this Agreement a monthly gross base salary in the amount of
         53,000 (fifty-three  thousand) NIS (the "BASE SALARY"). The base salary
         shall be updated according with the  consumer-pricing  rate every three
         (3) months

4.       EMPLOYEE BENEFITS

         The Employee shall be entitled to the following benefits:

         (i)      MANAGER'S  INSURANCE.  At the end of  each  month  during  the
                  employment of the employee hereunder,  the Company will pay to
                  an insurance  company of the  Company's  choice as premium for
                  manager's insurance for the Employee, an amount equal to 13.3%
                  of the Base Salary together with up to 2.5% of the Base Salary
                  for disability,  and will deduct from each payment of the Base
                  Salary and pay to such insurance company an amount equal to 5%
                  of the Base  Salary,  which shall  constitute  the  Employee's
                  contribution to such premium.

                  The Company covenants and undertakes to transfer the ownership
                  in the above mentioned insurance policies to the Employee upon
                  termination of the Employee's  employment with the Company and
                  to take  all  such  actions  necessary  to  effect  the  same,
                  provided,  however,  that the Company  shall not be obliged to
                  the above mentioned  undertaking if the Employee's  employment
                  was  terminated  for Cause  pursuant to Articles 6(a) and 6(c)
                  hereunder,  or if the  employment  was  terminated  due to the
                  resignation of the employee.

         (ii)     KEREN  HISHTALMUT  FUND.  At the end of each month  during the
                  employment of the Employee hereunder,  the Company will pay an
                  amount equal to 7.5% (seven and one-half  percent) of the Base
                  Salary to a Keren  Hishtalmut  Fund designated by the Employee
                  (the "FUND") ("the Company's  Payment to the Fund"),  and will
                  deduct  from each  payment of the Base  Salary and pay to such
                  Fund an amount equal to 2.5% of the Base  Salary,  which shall
                  constitute the Employee's contribution to such Fund, provided.

         (iii)    SICK LEAVE.  The Employee shall be entitled to fully paid sick
                  leave pursuant to the Sick Pay-Law - 1976.

         (iv)     VACATION. The Employee shall be entitled to an annual vacation
                  of 24 working  days at full pay.  A  "working  day" shall mean
                  Sunday to Thursday inclusive. Vacation days may be accumulated
                  and may, at the  Employee's  option,  be  converted  into cash
                  payments in an amount


<PAGE>


                  equal to the  proportionate  part of the Base  Salary for such
                  days to the extent provided by law.

         (v)      DMEY  HAVRA'A The  Employee  shall be entitled to 12 days Dmey
                  Havra'a  per year,  as  provided  in a  Collective  Bargaining
                  Agreement  to which the General  Labor Union of the Workers in
                  Israel is a party,  regarding the payment of Dmey Havra'a that
                  is in force and effect

         (vi)     AUTOMOBILE.  During the term OF this  Agreement,  the  Company
                  shall,  on its own expense,  provide the  Employee  with a car
                  (the  "CAR"),  for  his  use.  Such  car  shall  be in a level
                  suitable  for  the  Employee's   position  as  CEO  (at  least
                  2,500cc).

                  The  Company  shall  be  liable  for any tax  duty  under  any
                  applicable  law,  that the  Employee  may be  required  TO PAY
                  derived form his the use of the Car.

                  For the avoidance of doubt,  it is hereby  emphasized that the
                  Company  shall not be obliged to pay any fines  related to the
                  use of the Employee's automobile.

         (vii)    MOBILE PHONE.  The Company shall provide the Employee with the
                  Company-owned  mobile phone,  including  reimbursement  of all
                  related maintenance,  repairs,  insurance and other costs. The
                  model of the Company-owned  mobile phone, shall not defer from
                  those customary for persons situated in a similar capacity.

                  The  Company  shall  pay  any tax  that  the  Employee  may be
                  required to pay for the use of the Company-owned mobile phone.

                  In addition the Company will provide the Employee with a phone
                  line at the residence of the Employee and will pay the cost of
                  its  use,  which  is  related  to his  work  in  the  Company,
                  including any tax that may be required.

         (viii)   BUSINESS  EXPENSES.  The Company shall  reimburse the Employee
                  for  reasonable  expenses that the  Executive  may  reasonably
                  incur  in  connection  with  the  performance  of  his  duties
                  hereunder.

                  The reimbursement of such expenses shall be made in accordance
                  with the Company's procedures for such matters.

5.       OPTIONS TO PURCHASE SECURITIES

         Further to any option the  Employee  may hold at the date  hereof,  the
         Employee shall be granted also with 70,000 (seventy  thousands) options
         ("OPTIONS")  according  with the Company's  employee stock option plan.
         All terms and  conditions  regarding  the  issuance and  exercise,  and
         exercise price including the vesting periods, of any such options shall
         be as provided for in the Company's' employee stock option plan.


<PAGE>


6.       TERMINATION

         (a)      RESIGNATION.  The Employee  shall not resign from his position
                  at the  Company  without  giving a prior  written  notice (the
                  "PRIOR NOTICE") to the Company at least 90 (ninety) days prior
                  to the date on which the Employee plans to leave the employ of
                  the Company.

         (b)      CAUSE. The Company may terminate the Employee's employment for
                  Cause.  Termination  for  "CAUSE"  shall be  limited  to:  (i)
                  Employee's  conviction  of any  crime  constituting  an act of
                  moral turpitude;  (ii) Employee's embezzlement of funds of the
                  Company;  (iii.)  Employee's  willful  disregard of lawful and
                  proper  instructions  of the Board with respect to  Employee's
                  duties to the Company following a notice stating the nature of
                  such  Board  instruction;  (iv)  any  willful  breach  by  the
                  Employee of his fiduciary  duties as an officer of the Company
                  pursuant  to  court  decision;  Provided,  however,  that  the
                  Company may not terminate the Employee's  employment for cause
                  unless it has given the  Employee  (i)  written  notice of the
                  basis for the  proposed  termination  and (ii) at least ninety
                  days (90) in which to cure such basis.

         (c)      WITHOUT  CAUSE.  The  Company  may  terminate  the  Employee's
                  employment without cause, provided,  however that the Employee
                  is given a 90 (ninety) days prior written notice. In case of a
                  change in the ownership structure of the Company,  the Company
                  may  terminate  the  Employee's   employment   without  cause,
                  PROVIDED,  HOWEVER  that  the  Employee  is  given a 180  (one
                  hundred and eighty) days prior written notice.

         For the removal of any doubt,  during  such prior  notice  period,  the
         Employee  shall be entitled for all the benefits  under this  Agreement
         whether he shall act as the  Company's  CEO or not,  and all subject to
         this Agreement.

7.       CONFIDENTIALITY; PROPRIETARY RIGHTS

         (a)      CONFIDENTIALITY. Employee recognizes and acknowledges that the
                  systems     (including     specifications,     programs    and
                  documentation),  the methods and data,  and the  developments,
                  designs, inventions,  improvements, trade secrets and works of
                  authorship,  which the Company, or any employee thereof, owns,
                  plans or develops  (whether  for its own use or for use by its
                  clients) are confidential and are the property of the Company.
                  All of these  materials  and  information  will be referred to
                  below as "PROPRIETARY INFORMATION".

                  The Employee  further  recognizes  and  acknowledges  that any
                  discoveries,    developments,    designs,    inventions    and
                  improvements,  directly or indirectly  related to the business
                  of the Company or its clients  ("Creations")  made or acquired
                  by him and  whether or not made or acquired by him in business
                  hours or at the  premises  of the  Company  and whether or not
                  made or acquired with the  assistance of material  supplied by
                  the Company and whether or not made or


<PAGE>


                  acquired  with the  assistance  of  material  supplied  by the
                  Company  and  whether  or not the  EMPLOYEE  SHALL  have  been
                  requested  by the  Company to make or acquire  such  Creations
                  shall belong to the Company.

                  Upon  request,   the  Employee  will  execute  any  instrument
                  required to vest in the Company  complete  title and ownership
                  to such Creations,  and will at the request and expense of the
                  Company  execute  any  necessary  instrument  to obtain  legal
                  protection  in Israel and foreign  countries for such Creation
                  and for the purposes of vesting  title thereto in the Company,
                  all without  any  additional  compensation  of any kind to the
                  Employee.

         (b)      NON-DISCLOSURE.  Employee  agrees that,  except as directed by
                  the Company,  he will not,  during the term of this  Agreement
                  and for an unlimited period of time thereafter disclose to any
                  person or use,  directly  or  indirectly  for  Employee's  own
                  benefit or the benefit of others, any Proprietary Information,
                  or  permit  any  person  to  examine  or  make  copies  of any
                  documents  which may  contain or be derived  from  Proprietary
                  Information.

8.       COMPETITIVE ACTIVITY

         The Employee  undertakes not, directly or indirectly (whether as owner,
         partner, consultant, employee or otherwise) at any time, during and for
         two years  following  the  Commencement  Date, to engage in any work or
         activity that is competitive with the Company's  activities or products
         actively  marketed or under active  development by the Company,  nor to
         solicit any employee of the Company to resign from or  otherwise  leave
         the  employment of the Company.  As defined in this Article 8, the term
         "Commencement   Date"  shall  mean  the  date  in  which  the  Employee
         terminated  his employment  with the Company,  or the date in which the
         Employee ceases to be, directly or indirectly  (including holdings by a
         Family  Member),  an Interested  Party at the Company,  whichever comes
         later. For the purpose of this Article 8 the terms  "Interested  Party"
         and  "Family  Member"  shall have the same  meanings  as such terms are
         defined in Section 1 of the Israeli Securities Law, 1968.

9.       NOTICE

         For the purpose of this Agreement, notices and all other communications
         provided for in the  Agreement  shall be in writing and shall be deemed
         to have been duly given when personally delivered or sent by registered
         mail, postage prepaid,  addressed to the respective addresses set forth
         below  or last  given by each  party  to the  other.  All  notices  and
         communications  shall be deemed to have  been  received  on the date of
         delivery  thereof,  except  that  notice of change of address  shall be
         effective only upon receipt.

         The initial  addresses  of the parties for  purposes of this  Agreement
         shall be as follows:


<PAGE>


         The Company: 3 Tidhar st, Raanana

         The Employee: Hagaon Eliyho 16 Ramat-Gan

10.      MISCELLANEOUS

         No provision of this  Agreement  may be modified,  waived or discharged
         unless such waiver,  modification  or discharge is agreed to in writing
         and signed by the Employee  and the Company.  No waiver by either party
         hereto  at any time of any  breach  by the other  party  hereto  of, or
         compliance  with,  any condition or provisions of this  Agreement to be
         performed  by such other  party  shall be deemed a waiver of similar or
         dissimilar  provisions  or  conditions  at the same or at any  prior or
         subsequent  time. No agreement or  representations,  oral or otherwise,
         express or implied, with respect to the subject matter hereof have been
         made either party which are not expressly set forth in this Agreement.

11.      GOVERNING LAW

         This  Agreement  shall be governed  by and  construed  and  enforced in
         accordance with the laws of the State of Israel.

12.      ENTIRE AGREEMENT

         This Agreement  constitutes  the entire  agreement  between the parties
         hereto  and  supersedes  all  prior  agreements,   understandings,  and
         arrangements,  oral or written, between the parties hereto with respect
         to the subject matter hereof.

13.      HEADINGS

         The headings of paragraphs are inserted for  convenience  and shall not
         affect any interpretation of this Agreement.

 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
 duly authorized officer and the Executive has executed this Agreement as of the
 day and year first above written.

 THE COMPANY

 By:_______________________                            _________________________
 NAME: ELI ROZEN                                       The Employee
 Title: Chairman of the Board



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>8
<FILENAME>c32537_ex4-3.txt
<TEXT>
                                                                          Ex 4.3

                              EMPLOYMENT AGREEMENT

 Made and entered into this 28day of April, 2002.

Between: SUPERCOM LTD., a company duly registered and incorporated under the
         laws of Israel, with principal offices at Tidhar St., Millennuim bldg,
         Raanana 43665, Israel (HEREINAFTER THE "COMPANY");

                                                               ON THE FIRST PART

And:     Mr. EYAL TUCHMAN ID No_023543036 of Israel from: P.O.B 454 Kefar-Hess,
         Israel (HEREINAFTER THE "EMPLOYEE")

                                                              ON THE SECOND PART

Whereas  The Company is engaged in the development, production and marketing of
         systems for the production of secure and durable national
         identification documents; and

Whereas  the Employee has the experience, know-how and qualifications to serve
         as the controller of the Company; and

Whereas  the Company has offered that the Employee undertakes employment with
         the Company as its controller and the Employee agrees to be employed as
         such, all in accordance with the the terms and conditions of this
         Agreement.

 NOW,  THEREFORE,  in  consideration  of the  mutual  covenants  and  conditions
 hereinafter set forth, it is agreed by the parties as follows:

1.       PREAMBLE

The Preamble to this Agreement forms an integral part thereof.

2.       POSITION.

2.1      The Company hereby employs the Employee, and the Employee hereby agrees
         to serve as the Company's CFO.

2.2      As the CFO of the Company, the Employee shall devote his full business
         time and efforts to the affairs of the Company, and shall have all the
         responsibilities and powers that usually apply to this job.

2.3      The Employee shall report to the CEO.


<PAGE>


3.       SALARY & OTHERS

3.1      The Company shall pay the Employee a monthly salary of 27,000 NIS
         (hereinafter the "Salary") gross, payable each month not later than the
         Ninth day of each month.

3.2      The Employee shall be entitled to a refund for all expenses incurred by
         him in the performance of his duties hereunder (in accordance with the
         prevailing laws and regulations).

3.3      Bonus - the employee will receive a yearly bonus, the bonus will
         reflect the achievement and contribution of the employee to the
         regarded parameter. The period for calculating the bonus will be
         1.1.20OX-31.12.20OX.

3.4      The formulation of the bonus will be conclude 60 day's after the
         employee will start to work in the company. The formula and the related
         assumptions will be attached to this contract.

3.5      Options- the employee will be entitled to an option pIan see Appendix
         A.(No of options - 50,000.

4.       BENEFITS.

4.1      The Company shall pay every month, an amount equal to 13.33% of the
         Salary to an insurance policy and a pension fund (hereinafter "Bituach
         Menahalim") in the name of the Employee. Furthermore, the company shall
         make allowance of 2.5% of his gross salary. The Employee shall pay to
         such insurance policy, every month, an amount equal to 5% of the
         Salary. The Bituach Menahalim and/or the pension fund and/or (with
         regard to amounts contributed by the company) shall be transferred to
         the employee, subject to any applicable law, upon the termination of
         employee's employment under any circumstances, exept in circumstances
         of termination of employment for justifiable Cause.

4.2      The Company shall pay every month, an amount equal to 7.5% of the
         Salary to an educational fund (hereinafter "Keren Hishtalmut") in the
         name of the Employee. The Employee shall pay to such fund, every month,
         an amount equal to 2.5% of the Salary.

4.3      The Employee's payments pursuant to sections 4.1 and 4.2 above shall be
         deducted at source from the Salary. All taxes due, if any pursuant to
         sections 4.1 and 4.2 above shall be borne and paid by the Company.

4.4      The Employee shall be entitled to a vacation leave of 22 days per year,
         which may be carried forward, from year to year.

4.5      The Company shall make available to the employee a car (Taxation group
         No 3) for his exclusive use during the term of this Agreement.,


<PAGE>


         The Company shall pay all costs associated with the car, whether fixed
         or variable, including without limitation, fuel, repairs and insurance
         including taxation according to the value of the car.

4.6      The Company will maintain a director's and officers liability insurance
         in the name of the Company, covering all the Employee's duties under
         this Agreement.

4.7      The Employee shall be entitled to the payment of 7 recuperation days
         (Havraha) every year.

4.8      The Company will provide to the employee a cellular phone. Taxation
         according to the value of the cellular phone will pay by the company.

5.       PROPRIETARY INFORMATION.

5.1      Employee recognizes and understands that his employment creates a
         relationship of confidence and trust between him and the Company, and
         that proprietary information obtained by the Employee as a result of
         this Agreement is the sole property of the Company. At all times, both
         during his employment with the Company and after its termination, the
         Employee will keep in confidence and in trust all such proprietary
         information and will not use or disclose any such information or
         anything relating to it without the written consent of the Company,
         except as may be necessary in the ordinary course of performing his
         duties as the Controller of the Company.

5.2      In the event of termination of the Employee's employment with the
         Company for any reason, the Employee will deliver to the Company all
         documents and data of any nature pertaining to his work with the
         Company.

6.       COMPETITION.

The Employee shall not, during the term of his employment with the Company, and
for a period of two (2) years after termination of this Agreement, render
services similar to his duties as The Controller of the Company, to any entity
or business which competes with the Company directly or indirectly.

7.       CONFIDENTIALITY.

The Employee undertakes that during the term of this Agreement and after its
termination, he shall not disclose to others confidential information of the
Company, including but not limited to, information relating to the business
concerns of the Company, its customers, its financial position and its plans for
the future.

8.       TERM AND TERMINATION.

8.1      Either party may terminate this Agreement upon a 90 (Ninty) days prior
         written notice, provided however, that the Company may terminate this
         Agreement for a "Justifiable Cause" without prior notice.


<PAGE>


8.2      A termination for "Justifaible Cause" is a termination due to (i)
         Employee's conviction of any crime constituting an act of moral
         turpitude; (ii) Employee's embezzlement of funds of the Company; (iii)
         Employee's willful disregard of lawful and proper instructions of the
         Board with respect to Employee's duties to the Company following a
         notice stating the nature of such Board instruction. The obligations
         detailed in section 7 hereinabove shall survive termination.

9.       MISCELLANEOUS.

9.1      The Employee shall not disclose the terms of this Agreement to any
         person or entity within or outside the Company, except as may be
         required by law.

9.2      This Agreement constitutes the entire understanding between the parties
         with respect to the subject matter hereof. Any prior understandings,
         undertakings or representations, written or oral, shall be of no force
         or effect.

9.3      This Agreement may be amended only through a document signed by both
         parties.

9.4      No rights of any party shall be prejudiced or restricted by an
         indulgence or forbearance to any party, and no waiver by any party in
         respect of any breach shall operate as a waiver in respect to a
         subsequent breach.

9.5      Any notice, demand, call or request under this Agreement (hereinafter a
         "Communication") which a party may desire to serve, or be required to
         serve upon the other party, shall be in writing and shall be deemed
         sufficiently served if: (a) delivered by hand; or (b) if sent by
         courier that guarantees delivery of such Communication within twenty
         four (24) hours, addressed to the other party's address as set forth in
         the preamble to this Agreement; or (c) sent by facsimile with a
         confirmation of receipt.

9.6      The addresses of the Parties for the purpose of this Agreement are as
         forth in the preamble to this Agreement.

IN WITNESS WHEREOF, The parties hereunto cause this Agreement to be duly
executed.

________________________                               _________________________
Supercom, Ltd.                                         Eyal Tuchman


<PAGE>


EYAL TUCHMAN
- --------------------------------------------------------------------------------
From:               Eyal Tuchman
Sent:               Wednesday, December 17, 2003 2:00 PM
To:                 Avi Schechter
Subject:            My base Salary and holiday days redemption.


Avi,

Following our discussion regarding the above issues please confirm the follow:

1. My base  salary  is  increasing  from  27,000  NIS to  32,000  NIS per month
tarting on 1.1.2004.

2. Redemtion of 22 holiday days.

3. All other employment arrangements continuing upon my employment agreement.

Best Regards,

Eyal Tuchman
C.F.0 Corporate SuperCom Ltd.
- ---------------------------------
Tel: +972-9-7750800
Cell Phone:+972-54-442267

Millennium Bldg, 3 Tidhar St., P.O. B 2094
Raanana 43665, Israel

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>9
<FILENAME>c32537_ex4-4.txt
<TEXT>

                                                                          Ex 4.4

Exhibit 4.4 - Basson Employment Agmt


                             PERSONAL WORK AGREEMENT

                 drawn up and signed in Tel Aviv on JULY 28 1997






                                    between:

                               Name: SUPERCOM LTD.
                           Private Company: 511307704
                     Address: 25 INDUSTRIAL AREA, KFAR SABA

                          (hereinafter: the "Company")

                                                               OF THE FIRST PART

                                      and:

                                Name: ELI BASSON
                                  ID: 5644214/8
                         Address: 22/23 AVRAHAM KEREN ST

                          (hereinafter: the "Employee")

                                                              OF THE SECOND PART


Whereas:    the Company is interested in employing the Employee in the position
            of vice president in the Company in accordance with the terms of
            this agreement as detailed below; and


whereas:    the Employee declares that he has the abilities, skills and
            experience required to carry out the position and has expressed his
            agreement to serve in the above position, all in accordance with the
            terms of this agreement as detailed below;


 THEREFORE IT IS STIPULATED, DECLARED AND AGREED BETWEEN THE PARTIES AS FOLLOWS:


1.    The preamble to this agreement is an integral part thereof.

2.    PERIOD OF THE AGREEMENT

      The Company undertakes to employ the Employee in the position of vice
      president in the Company as of August 1 1997 (hereinafter: the "Agreement
      Period"), and the Employee undertakes to carry out this position during
      the Agreement Period.

3.    PARTICULAR AGREEMENT

      This agreement is personal and particular and regulates relations between
      the Company and the Employee, and exclusively determines the terms of
      employment of the Employee by the Company. Therefore the general and/or
      special collective agreements, with all their related appendices, and the
      other agreements made from time to time between the employers and the
      General Labor Federation and/or agreements between the Company and any of
      its employees do not apply to the Employee.


                                                                               1
<PAGE>

Exhibit 4.4 - Basson Employment Agmt


4.    DUTIES AND AUTHORITY

      The Employee's authority and duties as a vice president in the Company
      shall be in accordance with the instructions and guidelines of the
      Company's CEO, as given from time to time.

5.    SCOPE OF THE POSITION

      5.1   The Employee undertakes to carry out his duties in any place in
            Israel or abroad as required by the position.


      5.2   The Employee undertakes to work the hours required by his position,
            including overtime, and to appear wherever required in order to
            carry out his duties.

6.    PERSONAL TRUST

      6.1   The Employee undertakes to carry out his duties with dedication and
            loyalty, to use all his abilities, knowledge and experience to the
            benefit of the Company.

      6.2   During the period of his employment by the Company, the Employee
            shall not be entitled to engage in any additional work, with or
            without pay, of any kind whatsoever without receiving advance
            written authorization by the CEO of the Company.

      6.3   The Employee undertakes to inform the Company, immediately and
            without delay, of any matter or issue regarding which he has a
            personal interest and/or which are liable to create a conflict of
            interests with his position in the Company.

      6.4   The Employee's position is one of the positions requiring a special
            degree of personal trust, as defined in the Work and Rest Hours Law
            1951, and therefore the instructions of this Law shall not apply to
            him.

7.    SALARY

      7.1   For his work in the Company, the Company shall pay the Employee a
            gross salary of NIS 20,000 per month.

      7.2   The salary as stated in subsection 7.1 is gross and includes all the
            additions paid from time to time to all salaries in the economy, as
            well as any country-wide and/or plant bonus. The salary also
            includes payment for overtime work and work on rest days or
            holidays, and the Employee shall not be entitled to receive any
            additional payment of any kind whatsoever beyond the salary and/or
            benefits, unless explicitly stated in this agreement.

      7.3   The salary shall be linked to the cost of living increments
            customary in the economy.


      7.4   The salary shall be paid for five working days a week.


      7.5   The Employee shall be entitled to a 13th salary at the rate of one
            monthly salary, to be paid for the month of December in each working
            year. In the first working year, the proportionate amount shall be
            paid.


                                                                               2
<PAGE>

Exhibit 4.4 - Basson Employment Agmt


8.    ANNUAL VACATION, CONVALESCENCE AND SICK LEAVE (24 DAYS)

      8.1   The Employee shall be entitled to paid annual leave, convalescence
            pay and sick leave, according to the provisions of the law.

      8.2   The Employee shall inform the Company 30 days in advance of his
            intention to take annual leave. Should the Employee wish to utilize
            his annual leave in a number of short periods, he shall give notice
            of his intention at least four days before taking each such period
            of leave.

            In any event, the Employee shall not take leave without receiving
            advance authorization from the qualified authorities in the Company.

9.    SENIOR EMPLOYEES INSURANCE

      9.1   During the period that this agreement is in force, the Company shall
            make provisions to an insurance company for Senior Employees
            Insurance in the amount of 13.3% of the salary (comprising 5%
            pension, 8? % severance pay). In addition, the Company shall deduct
            and make provisions to the insurance company from the Employee's
            salary in the amount of 5% and the Employee agrees that the Company
            shall deduct this 5%.

      9.2   Said payments in subsection 9.1 above shall be instead of severance
            compensation under the Severance Pay Law 1963. This section is in
            accordance with Article 14 of the Severance Pay Law.

      9.3   The Company shall be the owner of the policy, and the beneficiary
            shall be the Employee.


      9.4   THE EMPLOYEE SHALL ENTITLED TO 2.5% AT THE END OF EACH MONTH.


10.   PERSONAL VEHICLE

      10.1  The Company shall provide the Employee with a suitable car for the
            purpose of carrying out his duties, at the Company's discretion. The
            Company shall bear all the expenses involved in use and maintenance
            of the car. THE CAR SHALL HAVE A CAPACITY OF 1600 CC.

      10.2  The Employee shall be responsible for all traffic fines incurred by
            him and shall not be entitled to reimbursement.


      10.3  The value of use of the car shall be credited to the Employee's
            salary as required by law.


11.   TERMINATION OF THE AGREEMENT

      11.1  Notwithstanding that stated above, each of the parties may terminate
            this agreement by notifying the other party in writing at least
            THREE months in advance.

      11.2  In addition to that stated in subsection 10.1 above, the Company
            shall be entitled to terminate this agreement with two weeks advance
            notice in the following cases:

            11.2.1  If the Employee has breached this agreement and not
                    corrected the breach immediately.

            11.2.2  If the Employee has been charged or investigated in respect
                    of a dishonorable crime.


                                                                               3
<PAGE>

Exhibit 4.4 - Basson Employment Agmt


12.   HANDING OVER THE POSITION

      The Employee undertakes that at the end and/or on termination of his
      employment by the Company, he shall return to the Company the car he has
      received, and shall hand over the position in an orderly manner, and shall
      give the Company all documents, information and other material that he has
      obtained or prepared in connection with his work before the end and/or
      termination of his employment by the Company.

13.   CONFIDENTIALITY

      13.1  Throughout the period of his employment and thereafter, the Employee
            undertakes not to reveal and/or transfer to any other person and/or
            entity outside the Company any information about the Company or
            information that he has obtained in the framework of his work for
            the Company and/or in connection with the Company which is not in
            the public domain. The Employee undertakes to maintain
            confidentiality in everything regarding the Company's business and
            affairs and not harm in any way whatsoever the reputation of the
            Company and/or its client base.

      13.2  Any invention or idea discovered by the Employee during the period
            of his employment by the Company and relating to the Company's
            sphere of business shall be considered to be the property of the
            Company and shall belong to it, and the Company shall be entitled to
            act as it wishes and to register the invention or idea in its name.

      13.3  That stated above in this section is in addition to the Employee's
            undertakings in the separate Declaration of Confidentiality which
            the Employee undertakes to sign.

14.   NON-COMPETITION

      14.1  The Employee undertakes that at the end and/or on termination of his
            employment by the Company and for a period of two years thereafter
            he shall not engage and/or participate and shall not take up a
            position in any manner whatsoever, directly or indirectly, in any
            competing business as stated above.

            That stated above shall apply to the Employee alone, together with
            another or other people, or another company, or any other entity
            managing or which shall manage a business similar to that of the
            Company.

      14.2  Furthermore, the Employee undertakes that at the end and/or on
            termination of his employment by the Company and for a period of two
            years thereafter he shall not approach the Company's clients or
            receive from the Company's clients or any other person, company or
            entity any position, order, proposal, work and/or business in which
            the Company was already engaged at the time or intended to engage in
            the future.

15.   WAIVER OR PRECEDENT

      Should either party to this agreement waive any right due to him under
      this agreement, this shall not constitute a precedent with regard to
      another identical case and no analogy shall be derived therefrom with
      regard to another similar


                                                                               4
<PAGE>

Exhibit 4.4 - Basson Employment Agmt


      case, and neither party shall be prevented from retracting and realizing
      any right waived as stated above.

16.   VALIDITY OF PREVIOUS AGREEMENTS

      This agreement replaces any previous written or verbal agreement between
      the Company and the Employee.

17.   CHANGE, CANCELLATION

      Any change and/or cancellation of any section of this agreement shall be
      made only in a written document which shall be signed by both parties.

18.   NOTIFICATION

      The address of the parties to this agreement are as stated in the
      preamble. Any notification sent by registered mail to the other party at
      the said address shall be considered to have been received by the
      addressee three days after its delivery at the Post Office, and if
      delivered by hand, at the time of delivery.


              IN WITNESS WHEREOF THE PARTIES AFFIX THEIR SIGNATURE:

                  (-)                                           (-)


              The Company                                  The Employee


                                                                               5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5
<SEQUENCE>10
<FILENAME>c32537_ex4-5.txt
<TEXT>
                                                                          Ex 4.5

DRAFT DATED NOVEMBER 7, 2001

                               SERVICES AGREEMENT

This  Services  Agreement  (the  "AGREEMENT")  is made  and  entered  into as of
November ,1st 2001, by and between  SuperCom Ltd., a company  existing under the
laws of the State of Israel (the "COMPANY") and Eli Rozen,  I.D. # 067341313(the
"SERVICE PROVIDER").

WHEREAS     the Company requires such services as set forth in this Agreement;
            and


WHEREAS     the Service Provider represents that he has the necessary knowledge
            and experience and is capable of competently and diligently
            providing all the services under this Agreement; and

WHEREAS     the Service Provider has been previously employed by the Company and
            the Company is aware of the Service Provider's skills and abilities;
            and

WHEREAS     the Company desires to retain the services of the Service Provider
            pursuant to the terms and conditions set forth in this Agreement and
            the Service provider agrees to provide such services to the Company
            on such terms and conditions.

NOW, THEREFORE, the parties hereto agree as follows:

 1.   GENERAL

      1.1   The preamble to this Agreement constitutes an integral part hereof.


      1.2   The headings of the sections and subsections of this Agreement are
            for convenience of reference only and are not to be considered in
            interpreting this Agreement.

      1.3   This agreement will enter into force and effect only after the
            Company has made, and the employee has received, all payments due to
            him in connection with his employment by the Company and termination
            thereof (as detailed in Exhibit A), including, without limitation,
            severance payments.

      1.4   Until all payment arrangements, as detailed in Exhibit A, has been
            completed and agreed, the employment agreement between the Company
            and the Employee, dated July 1, 1999, will apply to all matters and
            concerns.

 2.   THE SERVICES

      2.1   As of October 1, 2001 (the "EFFECTIVE DATE"), subject to the
            approval of the appropriate organs of the Company as required by any
            applicable law or regulation there under, the Company hereby engages
            the Service Provider and the Service Provider hereby agrees to
            provide the Company with consulting services (the "CONSULTING
            SERVICES") and services as


<PAGE>

            President and CEO of the Company (the "MANAGEMENT SERVICES") (the
            Consulting Services and Management Services collectively, the
            "SERVICES"). The Services shall be rendered in a diligent,
            conscientious and professional manner, pursuant to guidelines and
            procedures set forth by the Board of Directors of the Company from
            time to time.

            In addition, subject to the approval of the appropriate organs of
            the Company as required by applicable law, the Service Provider
            shall provide the Company with services as the Chairman of the Board
            of Directors of the Company.

      2.2   The Service Provider acknowledges that the consulting Services will
            require minimum 30 man-hours per month and will require regular
            attendance to the needs of the Company. The Services shall be to the
            satisfaction of the Company, as determined in the unrestricted
            discretion of the Board of Directors of the Company.

 3.   REPRESENTATIONS AND WARRANTEES OF THE SERVICE PROVIDER

            The Service Provider represents and warrants the following:

      3.1   That subject to the receipt of all appropriate approvals required by
            any applicable law, there are no legal, contractual or any other
            restrictions limiting his ability to perform the Services under this
            Agreement in accordance with the terms hereof.

      3.2   That he has the necessary knowledge and experience and is capable of
            competently and diligently providing all the services under this
            Agreement.

      3.3   That pursuant to an employment agreement between himself and the
            Company dated July 1, 1999 (the "EMPLOYMENT AGREEMENT") the Company
            employed him as President and CEO of the Company until September
            30th ,2001 (the "EMPLOYMENT PERIOD").

      3.4   That following the termination of the Employment Agreement and the
            end of the Employment Period he is no longer an employee of the
            Company and that except for the payment of the such amount as
            detailed in EXHIBIT A hereto.

      3.5   That, subject to the payment by the Company of as detailed in
            Exhibit A, he irrevocably waives any claims he has and/or will have
            against the Company arising from or in connection to the Employment
            Period and/or the Employment Agreement or the termination thereof.


                                      -2-
<PAGE>

 4.   TERM AND TERMINATION

      4.1   This Agreement shall enter into force and effect on the Effective
            Date, subject to the receipt of all appropriate approvals required
            by applicable law, including, as applicable, the approval of the
            Audit Committee, Board of Directors and Shareholders of the Company.

      4.2   The Company may terminate this agreement by providing 30 days prior
            written notice.

      4.3   The Service Provider may terminate this Agreement by providing 60
            days prior written notice.

      4.4   Without derogating from the provisions of Sections 4.1 and 4.3
            above, this Agreement may be terminated by the Company immediately
            upon any of the following events: (a) a perpetration by the Service
            Provider of a criminal offence, or a breach of trust or impairment
            to the Company, its monies, property, assets or employees by the
            Service Provider; (b) a breach of the Service Provider's
            undertakings with regard to confidentiality, intellectual property
            or non-competition; (c) any other breach by the Service Provider of
            this Agreement which has not been cured within thirty (30) days
            following receipt of a written notice of such breach.

      4.5   In any event of termination of this Agreement for any reason
            whatsoever, the Service Provider shall assist the Company with
            transferring all of the Service Provider's activities to any other
            person or entity chosen by the Company in an orderly fashion.

 5.   CONSIDERATION

      5.1   The Company shall pay the Service Provider the amount of NIS 20,000
            for the Consulting Services, the amount of NIS 10,000 for the
            Management Services and, for as long as the Service Provider
            continues to serve as the Chairman of the Board of Directors of the
            Company, he shall be entitled to an additional amount of NIS 10,000
            (the "CONSIDERATION"). Other than as expressly provided for in this
            Agreement, the Service Provider shall not be entitled to any other
            payment or consideration of any type or nature whatsoever,
            including, without limitation, any fees, bonuses, reimbursement for
            expenses or the like. The aforementioned monthly pay shall be linked
            to the Dollar Exchange rate as published at the end of the month.

      5.2   Each payment shall be made against a detailed invoice issued by the
            Service Provider, to the full satisfaction of the Company.
            Applicable Value Added Tax shall be added to each payment.

      5.3   In addition to the Consideration, and for as long as the Service
            Provider shall provide the Company with the Services under this
            Agreement, the Company shall provide the Service Provider with a
            Company owned automobile, including reimbursement of all related
            maintenance, fuel,


                                      -3-
<PAGE>

            repairs, insurance and other costs. The automobile to be provided to
            the Service Provider shall not be of a lesser type or quality than
            that which is customary for persons serving in a similar capacity to
            the Service Provider.

      5.4   The payments to be made by the Company to the Service Provider
            hereunder (including issuance of shares pursuant to Section 6
            below), is inclusive of all taxes, levies and other compulsory
            payments of any kind, all of which shall be borne by the Service
            Provider solely. To the extent required under any applicable law,
            the Company may withhold any tax from any payment to the Service
            Provider hereunder and remit the balance to the Service Provider.

  6.  OPTION

      6.1   The Service provider shall have the option to receive, in lieu of
            payment of the Consideration as detailed in Section 5 above,
            securities of the Company and/or of SHC Inc., a subsidiary of the
            Company (the "OPTION").

            The payment of the amount detailed in Exhibit A will be deferred
            until the cash flow of the company will enable such payment. The
            Service Provider shall have the option to receive Company Shares at
            market price ,in lieu of this payment .

      6.2   In the event that the Service Provider wishes to exercise the
            Option, he shall provide the Company with a written notice to such
            effect (the "OPTION NOTICE"). Following the receipt of the Option
            Notice by the Company, the parties will negotiate in good faith the
            terms and conditions of the exercise of the Option by the Service
            Provider, including, without limitation, the type of securities to
            be issued to the Service Provider, the price of such securities and
            any other terms, conditions, restrictions and limitations applicable
            to such issuance.

      6.3   In the event that the parties have conducted negotiations in good
            faith and have failed to mutually agree upon the terms and
            conditions of the exercise of the Option, the Service Provider's
            sole remedy shall be the payment of the Consideration by the
            Company.

      6.4   The parties hereto acknowledge and agree that exercise of the Option
            by the Service Provider shall be subject to the receipt of all
            appropriate approvals required by applicable law.

  7.  CONFIDENTIALITY; PROPRIETARY RIGHTS

      7.1   CONFIDENTIALITY. The Service Provider recognizes and acknowledges
            that the systems (including specifications, programs and
            documentation), the methods and data, and the developments, designs,
            inventions, improvements, trade secrets and works of authorship,
            which the



                                      -4-
<PAGE>

            Company, or any employee thereof, owns plans, or develops (whether
            for its own use or for use by its clients) are confidential and are
            the property of the Company. All of these materials and information
            will be referred to below as "Proprietary Information".

            The Service Provider further recognizes and acknowledges that any
            discoveries, developments, designs, inventions and improvements,
            directly or indirectly related to the business of the Company or its
            clients (the "CREATIONS") made or acquired by him and whether or not
            made or acquired by him in business hours or at the premises of the
            Company and whether or not made or acquired with the assistance of
            materials supplied by the Company and whether or not the Service
            Provider shall have been requested by the Company to make or acquire
            such Creations shall belong to the Company.

            Upon request, the Service Provider will execute any instrument
            required to vest in the Company complete title and ownership to such
            Creations, and will at the request and expense of the Company
            execute any necessary instrument to obtain legal protection in
            Israel and foreign countries for such Creations and for the purposes
            of vesting title thereto in the Company, all without any additional
            compensation of any kind to the Service Provider.

      7.2   NON-DISCLOSURE. The Service Provider agrees that, except as directed
            by the Company, he will not, during the term of this Agreement and
            for and unlimited time thereafter, disclose to any third party or
            use, directly or indirectly, whether for his own benefit or the
            benefit of others, any Proprietary Information, or permit any third
            party to examine or make copies of any document (whether in written
            or any other form) which may contain or be derived from the
            Proprietary Information.

 8.   NON-COMPETITION

      The Service Provider undertakes not, directly or indirectly (whether as
      owner, partner, consultant, employee or otherwise) at any time, during and
      for two (2) years following the Commencement Date (as defined below), to
      engage in any work or activity that is competitive with the Company's
      activities or products actively marketed or under active development by
      the Company, nor to solicit any employee of the Company to resign from or
      otherwise leave the employment of the Company.

      The term "Commencement Date" shall mean the later of (a) the date in
      which this Agreement has been terminated for any reason; or (b) the
      date in which the Service Provider ceases to be, directly or
      indirectly (including holdings by a family Member), an interested
      party in the Company. For the purpose of this Section 8 the terms
      "Interested party" and "Family Member" shall have the same meaning
      as such terms are defined in section 1 of the Israeli Securities
      Law, 1968.


                                      -5-
<PAGE>

  9.  INDEPENDENT CONTRACTOR

      9.1   The relationship between the parties under this Agreement is
            strictly that of independent parties, where the Service Provider,
            acting solely as an independent contractor, shall supply the
            Services to the Company. Nothing herein shall be deemed to create
            the relationship of employer-employee, agency, joint venture or
            partnership between the parties or between either of the parties and
            any third person.

      9.2   The Service Provider undertakes that he and/or anyone on his behalf
            shall not assert any claim against the Company, its shareholders,
            directors, officers or representatives any cause of action or claim
            in connection with employer-employee relations which may have
            allegedly existed between him and the Company, and if he does so, he
            shall indemnify the Company upon its first demand for any expense
            that may be occasioned to it in respect of or in connection with a
            claim as aforesaid, including attorney's fees.

      9.3   Without prejudice to the generality of the foregoing, it is hereby
            agreed that the Service Provider and anyone acting on his behalf
            shall not be entitled to receive from the Company any severance pay
            and/or any other payment and/or other consideration deriving from
            employer-employee relations and/or the termination thereof and/or
            any social benefits.

      9.4   If for any reason whatsoever a competent authority, including a
            judicial body, determines that the Service Provider or any one on
            his behalf is the Company's employee, the following provisions shall
            apply:

            9.4.1 In lieu of the Consideration that was paid to the Service
                  Provider from the Effective Date, the Service Provider shall
                  be deemed to have been entitled only to a reduced
                  consideration (gross) of 70% of the consideration actually
                  paid to the Service Provider (the "REDUCED CONSIDERATION"),
                  and in such event the Service Provider shall be deemed only
                  entitled to the Reduced Consideration retroactively from the
                  Effective Date.

            9.4.2 The Service Provider shall immediately refund to the Company
                  any amount paid from the Effective Date that was paid in
                  excess of the Reduced Consideration, linked to the Israeli
                  consumer price index from the date of each payment to the date
                  of actual refund.

  10. MISCELLANEOUS

      10.1  ASSIGNMENT. The Service Provider is prohibited from assigning any of
            his obligations or rights under this Agreement to any third party
            without the express prior written consent of the Company.

      10.2  COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
            between the parties with respect to the matters referred to herein,
            and no



                                      -6-
<PAGE>

            other arrangement, understanding or agreement, verbal or otherwise,
            shall be binding upon the parties hereto. The parties hereto agree
            and represent that the Employment Agreement is terminated as of the
            Effective Date.

      10.3  GOVERNING LAW, JURISDICTION. This Agreement shall be governed by and
            construed exclusively according to the laws of the State of Israel,
            and any dispute arising under or in connection herewith shall be
            presented in and determined exclusively by the courts of the state
            of Israel.

      10.4  NO WAIVER. No failure or delay on the part of any party hereto in
            exercising any right, power or remedy thereunder shall operate as a
            waiver thereof, nor shall any single or partial exercise of any such
            right, power or remedy preclude any other or further exercise
            thereof or the exercise of any other right, power or remedy. Any
            waiver granted thereunder must be in writing and shall be valid only
            in the specific instance in which given.

      10.5  SEVERABILITY. If any provision of this Agreement is held by a court
            of competent jurisdiction to be unenforceable under applicable law,
            then such provision shall be excluded from this Agreement and the
            remainder of this Agreement shall be interpreted as if such
            provision were so excluded and shall be enforceable in accordance
            with its terms; provided, however, that in such event this Agreement
            shall be interpreted so as to give effect, to the greatest extent
            consistent with and permitted by applicable law, to the meaning and
            intention of the excluded provision as determined by such court of
            competent jurisdiction

      10.6  NOTICES. All notices and other communications required or permitted
            hereunder to be given to a party to this Agreement shall be in
            writing and shall be faxed or mailed by registered or certified
            mail, postage prepaid, or otherwise delivered by hand or by
            messenger, addressed to such party's address as set forth below or
            at such other address as the party shall have furnished to each
            other party in writing in accordance with this provision:

            if to the Company:           Supercom Ltd.
                                         3 Tidhar St. Raanana, Israel.


            if to the Service Provider:  Eli Rozen
                                         38 Heleni HamalchaSt., Herzelia, Israel

            Any notice sent in accordance with this Section 10.6 shall be
            effective (i) if mailed by registered or certified mail, four (4)
            business days after mailing, (ii) if sent by messenger, upon actual
            receipt or refusal thereof, and (iii) if sent via facsimile, upon
            transmission and electronic confirmation of receipt or (if
            transmitted and received on a non-business day) on the first
            business day following transmission and electronic confirmation of
            receipt (provided, however, that any notice of change of


                                      -7-
<PAGE>

            address shall only be valid upon receipt).


IN WITNESS WHEREOF,  this Agreement has been executed by the parties hereto as
of the day and year first above written.

SuperCom Ltd                                    Eli Rozen

    /s/GOLD MOSHE                               /s/ ELI ROZEN
By: ____________________                        _____________________


_______________________
Name (Print)

        CFO
_______________________
Title

  52852-2\0\15\0

                                       -8-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.6
<SEQUENCE>11
<FILENAME>c32537_ex4-6.txt
<TEXT>
SERVICE AGREEMENT - AVI LANDMAN

                               SERVICES AGREEMENT

This Services Agreement (the "AGREEMENT") is made and entered into as of October
1st , 2001, by and between  SuperCom Ltd., a company  existing under the laws of
the State of Israel (the  "COMPANY")  and AVI  LANDMAN,  ID No.  067151761  (the
"SERVICE PROVIDER").

WHEREAS     the Company  requires such services as set forth in this  Agreement;
            and


WHEREAS     the Service Provider  represents that he has the necessary knowledge
            and  experience  and  is  capable  of  competently   and  diligently
            providing all the services under this Agreement; and

WHEREAS     the Service Provider has been previously employed by the Company and
            the Company is aware of the Service Provider's skills and abilities;
            and

WHEREAS     the Company  desires to retain the services of the Service  Provider
            pursuant to the terms and conditions set forth in this Agreement and
            the Service  provider agrees to provide such services to the Company
            on such terms and conditions.

NOW, THEREFORE, the parties hereto agree as follows:

 1.       GENERAL

          1.1  The  preamble to this  Agreement  constitutes  an  integral  part
               hereof.


          1.2  The headings of the sections and  subsections  of this  Agreement
               are  for  convenience  of  reference  only  and  are  not  to  be
               considered in interpreting this Agreement.

 2.       THE SERVICES

          2.1  As of  October  1, 2001 (the  "EFFECTIVE  DATE"),  subject to the
               approval of the appropriate  organs of the Company as required by
               any applicable law or regulation  thereunder,  the Company hereby
               engages the Service  Provider  and the  Service  Provider  hereby
               agrees to provide the Company with  services as with  services as
               Research  Manager of the Company (the  "SERVICES").  The Services
               shall be rendered in a diligent,  conscientious  and professional
               manner,  pursuant to guidelines  and  procedures set forth by the
               Board of Directors of the Company from time to time.

          2.2  The Service Provider  acknowledges  that the consulting  Services
               will  require  minimum 30  man-hours  per month and will  require
               regular  attendance  to the needs of the  Company.  The  Services
               shall be to the satisfaction of the Company, as determined in the
               unrestricted discretion of the Board of Directors of the Company.

<PAGE>
 SERVICE AGREEMENT - AVI LANDMAN

 3.       REPRESENTATIONS AND WARRANTEES OF THE SERVICE PROVIDER


           The Service Provider represents and warrants the following:

          3.1  That subject to the receipt of all appropriate approvals required
               by any  applicable  law,  there are no legal,  contractual or any
               other  restrictions  limiting his ability to perform the Services
               under this Agreement in accordance with the terms hereof.

          3.2  That he has the necessary knowledge and experience and is capable
               of competently  and  diligently  providing all the services under
               this Agreement.

          3.3  That pursuant to an employment  agreement between himself and the
               Company  dated  July 1, 1999  (the  "EMPLOYMENT  AGREEMENT")  the
               Company  employed  him as Research  Manager of the Company  until
               September 30th 2001 (the "EMPLOYMENT PERIOD").

          3.4  That following the  termination  of the Employment  Agreement and
               the end of the  Employment  Period he is no longer an employee of
               the Company  and that  excepts for the payment of the such amount
               as  obligated by the company as apart of the  resignation  of the
               Employee.

  4.       TERM AND TERMINATION

          4.1  This Agreement shall enter into force and effect on the Effective
               Date,  subject  to  the  receipt  of  all  appropriate  approvals
               required  by  applicable  law,  including,  as  applicable,   the
               approval  of  the  Audit   Committee,   Board  of  Directors  and
               Shareholders of the Company.

          4.2  The Company may terminate this agreement,  subject to decision of
               the Board of Directors of the Company, by providing 60 days prior
               written notice.

          4.3  The Service Provider may terminate this Agreement by providing 60
               days prior written notice.

          4.4  Without  derogating  from the  provisions of Sections 4.1 and 4.3
               above,   this   Agreement   may  be  terminated  by  the  Company
               immediately upon any of the following events:  (a) a perpetration
               by the  Service  Provider of a criminal  offence,  or a breach of
               trust or impairment to the Company, its monies, property,  assets
               or employees by the Service Provider; (b) a breach of the Service
               Provider's   undertakings   with   regard   to   confidentiality,
               intellectual property or non-competition; (c) any other breach by
               the Service  Provider of this Agreement  which has not been cured
               within thirty (30) days following  receipt of a written notice of
               such breach.

          4.5  In any event of termination of this Agreement for any reason



                                      -2-
<PAGE>

 SERVICE AGREEMENT - AVI LANDMAN

               whatsoever,  the Service  Provider  shall assist the Company with
               transferring  all of the  Service  Provider's  activities  to any
               other  person  or  entity  chosen by the  Company  in an  orderly
               fashion.

  5.       CONSIDERATION

          5.1  The Company  shall pay the Service  Provider a monthly  amount of
               NIS 20,000 for the Services (the "CONSIDERATION").  Other than as
               expressly  provided for in this Agreement,  the Service  Provider
               shall not be entitled to any other  payment or  consideration  of
               any type or nature whatsoever, including, without limitation, any
               fees,  bonuses,  reimbursement  for  expenses  or the  like.  The
               aforementioned  monthly pay amount  shall be linked to the Dollar
               Exchange rate as published on the date of the payment.

          5.2  Each  payment  shall be made  against an  invoice,  issued by the
               Service  Provider,  to the  full  satisfaction  of  the  Company.
               Applicable Value Added Tax shall be added to each payment.

          5.3  In addition to the Consideration,  and for as long as the Service
               Provider  shall provide the Company with the Services  under this
               Agreement,  the Company shall provide the Service Provider with a
               Company  owned  cellular  phone  and  an  automobile,   including
               reimbursement  of  all  related   maintenance,   fuel,   repairs,
               insurance and other costs.  The  automobile to be provided to the
               Service  Provider  shall not be of a lesser type or quality  than
               the Employee had during the Employment Period.

          5.4  The  payments to be made by the  Company to the Service  Provider
               hereunder  (including  issuance  of shares  pursuant to Section 6
               below),  is inclusive of all taxes,  levies and other  compulsory
               payments of any kind,  all of which shall be borne by the Service
               Provider solely. To the extent required under any applicable law,
               the Company may  withhold any tax from any payment to the Service
               Provider hereunder and remit the balance to the Service Provider.

  6.       OPTION

          6.1  The Service provider shall have the option to receive, in lieu of
               payment  of the  Consideration  as  detailed  in Section 5 above,
               securities of the Company and/or of SHC Inc., a subsidiary of the
               Company (the "OPTION").


                                      -3-
<PAGE>

 SERVICE AGREEMENT - AVI LANDMAN

          6.2  In the event that the Service  Provider  wishes to  exercise  the
               Option,  he shall  provide the Company  with a written  notice to
               such effect (the "OPTION  NOTICE").  Following the receipt of the
               Option Notice by the Company,  the parties will negotiate in good
               faith the terms and  conditions  of the exercise of the Option by
               the Service Provider,  including, without limitation, the type of
               securities  to be issued to the  Service  Provider,  the price of
               such securities and any other terms, conditions, restrictions and
               limitations applicable to such issuance.

          6.3  In the event that the parties have conducted negotiations in good
               faith  and have  failed  to  mutually  agree  upon the  terms and
               conditions of the exercise of the Option,  the Service Provider's
               sole  remedy  shall be the  payment of the  Consideration  by the
               Company.

          6.4  The parties  hereto  acknowledge  and agree that  exercise of the
               Option by the Service Provider shall be subject to the receipt of
               all appropriate approvals required by applicable law.

  7.       CONFIDENTIALITY; PROPRIETARY RIGHTS

          7.1  CONFIDENTIALITY. The Service Provider recognizes and acknowledges
               that  the  systems   (including   specifications,   programs  and
               documentation),  the  methods  and  data,  and the  developments,
               designs,  inventions,  improvements,  trade  secrets and works of
               authorship,  which the  Company,  or any employee  thereof,  owns
               plans,  or  develops  (whether  for its own use or for use by its
               clients)  are  confidential  and are the property of the Company.
               All of these materials and information  will be referred to below
               as "Proprietary Information".

               The Service Provider further recognizes and acknowledges that any
               discoveries,  developments, designs, inventions and improvements,
               directly or indirectly  related to the business of the Company or
               its clients (the "CREATIONS") made or acquired by him and whether
               or not  made  or  acquired  by him in  business  hours  or at the
               premises of the Company and whether or not made or acquired  with
               the  assistance of materials  supplied by the Company and whether
               or not the  Service  Provider  shall have been  requested  by the
               Company to make or acquire  such  Creations  shall  belong to the
               Company.

               Upon request,  the Service  Provider will execute any  instrument
               required to vest in the Company  complete  title and ownership to
               such  Creations,  and  will at the  request  and  expense  of the
               Company   execute  any  necessary   instrument  to  obtain  legal
               protection in Israel and foreign countries for such Creations and
               for the purposes of vesting  title  thereto in the  Company,  all
               without any  additional  compensation  of any kind to the Service
               Provider.

          7.2  NON-DISCLOSURE.  The  Service  Provider  agrees  that,  except as
               directed  by the  Company,  he will not,  during the term of this
               Agreement and for and


                                      -4-
<PAGE>

 SERVICE AGREEMENT - AVI LANDMAN

               unlimited  time  thereafter,  disclose to any third party or use,
               directly  or  indirectly,  whether  for  his own  benefit  or the
               benefit of others,  any  Proprietary  Information,  or permit any
               third party to examine or make copies of any document (whether in
               written or any other form)  which may contain or be derived  from
               the Proprietary Information.

  8.      NON-COMPETITION

          The Service Provider  undertakes not, directly or indirectly  (whether
          as owner,  partner,  consultant,  employee or  otherwise) at any time,
          during  and for two (2)  years  following  the  Commencement  Date (as
          defined below),  to engage in any work or activity that is competitive
          with the Company's  activities or products  actively marketed or under
          active development by the Company,  nor to solicit any employee of the
          Company  to  resign  from or  otherwise  leave the  employment  of the
          Company.

          The term  "Commencement  Date" shall mean the later of (a) the date in
          which this Agreement has been  terminated  for any reason;  or (b) the
          date  in  which  the  Service  Provider  ceases  to  be,  directly  or
          indirectly  (including  holdings by a family  Member),  an  interested
          party in the  Company.  For the  purpose  of this  Section 8 the terms
          "Interested  party" and "Family Member" shall have the same meaning as
          such terms are  defined in section 1 of the  Israeli  Securities  Law,
          1968.

  9.      INDEPENDENT CONTRACTOR

          9.1  The  relationship  between the parties  under this  Agreement  is
               strictly that of independent parties, where the Service Provider,
               acting  solely as an  independent  contractor,  shall  supply the
               Services to the Company. Nothing herein shall be deemed to create
               the relationship of  employer-employee,  agency, joint venture or
               partnership  between the parties or between either of the parties
               and any third person.

          9.2  The  Service  Provider  undertakes  that he and/or  anyone on his
               behalf  shall not  assert  any claim  against  the  Company,  its
               shareholders, directors, officers or representatives any cause of
               action or claim in connection  with  employer-employee  relations
               which may have allegedly existed between him and the Company, and
               if he does so,  he shall  indemnify  the  Company  upon its first
               demand for any expense that may be occasioned to it in respect of
               or in connection with a claim as aforesaid,  including attorney's
               fees.

          9.3  Without  prejudice  to the  generality  of the  foregoing,  it is
               hereby agreed that the Service  Provider and anyone acting on his
               behalf  shall not be  entitled  to receive  from the  Company any
               severance pay and/or any other payment and/or other consideration
               deriving from employer-


                                      -5-
<PAGE>

 SERVICE AGREEMENT - AVI LANDMAN

               employee  relations  and/or the  termination  thereof  and/or any
               social benefits.


          9.4  If for any reason whatsoever a competent  authority,  including a
               judicial body, determines that the Service Provider or any one on
               his behalf is the Company's  employee,  the following  provisions
               shall apply:

              9.4.1  In lieu of the Consideration  that was paid to the  Service
                     Provider  from the  Effective  Date,  the Service  Provider
                     shall be  deemed to have  been  entitled  only to a reduced
                     consideration (gross) of 70% of the consideration  actually
                     paid to the Service Provider (the "REDUCED CONSIDERATION"),
                     and in such event the Service Provider shall be deemed only
                     entitled to the Reduced  Consideration  retroactively  from
                     the Effective Date.

              9.4.2  The  Service  Provider  shall  immediately  refund  to  the
                     Company  any amount paid from the  Effective  Date that was
                     paid in excess of the Reduced Consideration,  linked to the
                     Israeli  consumer price index from the date of each payment
                     to the date of actual refund.

  10.     MISCELLANEOUS

          10.1 ASSIGNMENT. The Service Provider is prohibited from assigning any
               of his  obligations  or rights under this  Agreement to any third
               party without the express prior written consent of the Company.

          10.2 COMPLETE  AGREEMENT.   This  Agreement   constitutes  the  entire
               agreement  between  the  parties  with  respect  to  the  matters
               referred to herein,  and no other  arrangement,  understanding or
               agreement, verbal or otherwise, shall be binding upon the parties
               hereto.   The  parties   hereto  agree  and  represent  that  the
               Employment Agreement is terminated as of the Effective Date.

          10.3 GOVERNING LAW, JURISDICTION.  This Agreement shall be governed by
               and construed  exclusively  according to the laws of the State of
               Israel,  and any dispute arising under or in connection  herewith
               shall be presented in and determined exclusively by the courts of
               the state of Israel.

          10.4 NO WAIVER. No failure or delay on the part of any party hereto in
               exercising any right, power or remedy thereunder shall operate as
               a waiver thereof, nor shall any single or partial exercise of any
               such  right,  power or  remedy  preclude  any  other  or  further
               exercise  thereof or the  exercise of any other  right,  power or
               remedy.  Any waiver  granted  thereunder  must be in writing  and
               shall be valid only in the specific instance in which given.

          10.5 SEVERABILITY.  If any  provision  of this  Agreement is held by a
               court  of  competent   jurisdiction  to  be  unenforceable  under
               applicable  law, then such provision  shall be excluded from this
               Agreement   and  the  remainder  of  this   Agreement   shall  be
               interpreted as if such provision were so


                                      -6-
<PAGE>

 SERVICE AGREEMENT - AVI LANDMAN

               excluded and shall be enforceable  in accordance  with its terms;
               provided,  however,  that in such event this  Agreement  shall be
               interpreted  so  as  to  give  effect,  to  the  greatest  extent
               consistent  with and permitted by applicable  law, to the meaning
               and  intention of the excluded  provision as  determined  by such
               court of competent jurisdiction

          10.6 NOTICES.  All  notices  and  other  communications   required  or
               permitted hereunder to be given to a partyto this Agreement shall
               be in  writing  and  shall be faxed or mailed  by  registered  or
               certified mail, postage prepaid,  or otherwise  delivered by hand
               or by messenger,  addressed to such party's  address as set forth
               below or at such other address as the party shall have  furnished
               to each other party in writing in accordance with this provision:

               if to the Company:             Supercom Ltd.
                                              3 Tidhar St. Raanana, Israel.

               if to the Service Provider:     Avi Landman
                                               99 Hagdud Haivry St.,
                                               Kiriat Haim, Israel.

               Any notice sent in  accordance  with this  Section  10.6 shall be
               effective (i) if mailed by registered or certified mail, four (4)
               business  days after  mailing,  (ii) if sent by  messenger,  upon
               actual  receipt  or  refusal  thereof,  and  (iii)  if  sent  via
               facsimile,  upon  transmission  and  electronic  confirmation  of
               receipt or (if transmitted and received on a non-business day) on
               the first  business day  following  transmission  and  electronic
               confirmation of receipt  (provided,  however,  that any notice of
               change of address shall only be valid upon receipt).

  IN WITNESS WHEREOF,  this Agreement has been executed by the parties hereto as
  of the day and year first above written.

SuperCom Ltd.                                            AVI LANDMAN

    /s/ GOLD MOSHE                                       /s/ AVI LANDMAN
By: ____________________                                 _______________________

________________________
Name (Print)

         CFO
_______________________
Title

52852-2\0\15\0

                                       -7-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14.1
<SEQUENCE>12
<FILENAME>c32537_ex14-1.txt
<TEXT>
                                                                    EXHIBIT 14.1


                        CONSENT OF INDEPENDENT AUDITORS



We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 22, 2004 with respect to the consolidated
financial statements and schedule of SuperCom Ltd for the three-year period
ended December 31, 2003 included in the Registration Statement (Form 20-F)
filed with the Securities and Exchange Commission.


                                            Kost, Forer, Gabbay & Kasierer
                                           A Member of Ernst & Young Global



Tel-Aviv, Israel
June 6, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14.2
<SEQUENCE>13
<FILENAME>c32537_ex14-2.txt
<TEXT>
                                                                         Ex 14.2


                            BDO McCabe Lo & Co
                            Certified Public Accountants

                            8th Floor Wing On Centre
                            111 Connaught Road Central
                            Hong Kong
                            Telephone: (852) 2541 5041
                            Facsimile: (852) 2815 2239


We hereby consent to the use in the Registration Statement of SuperCom Limited
on Form 20-F of our report dated February 10, 2004 relating to the consolidated
financial statements of SuperCom Asia Pacific Limited for the year ended
December 31, 2003 that is contained in that Registration Statement.

We also consent to the reference to us under the caption 'Statement by Experts'
in the Registration Statement.








/s/ BDO McCabe Lo & Co
- -------------------------
BDO McCabe Lo & Company
Hong Kong


June 3, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14.3
<SEQUENCE>14
<FILENAME>c32537_ex14-3.txt
<TEXT>
                                                                    EXHIBIT 14.3

                                                                     SCHEDULE II

                        SUPERCOM LTD AND ITS SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS



<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
                  DESCRIPTION                         BALANCE AT        CHARGED TO         BALANCE AT
                                                     BEGINNING OF       (DEDUCTED        END OF PERIOD
                                                        PERIOD         FROM) COSTS
                                                                       AND EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                <C>
Year ended December 31, 2001:
- ---------------------------------------------------------------------------------------------------------
         Allowance for doubtful accounts              1,200,000          -                  1,200,000
- ---------------------------------------------------------------------------------------------------------
Year ended December 31, 2002:
- ---------------------------------------------------------------------------------------------------------
         Allowance for doubtful accounts              1,200,000          -                  1,200,000
- ---------------------------------------------------------------------------------------------------------
Year ended December 31, 2003:
- ---------------------------------------------------------------------------------------------------------
         Allowance for doubtful accounts              1,200,000          2,133,000          3,333,000
- ---------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------
</TABLE>


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
