Top Image Systems Ltd. : Top Image Publishes Letter to Shareholders

Top Image Publishes Letter to Shareholders TEL AVIV, Israel - January 4, 2012 - Top Image Systems™ (TIS™) Ltd. (Nasdaq: TISA), a leading ECM (Enterprise Content Management) content capture and delivery solutions provider, has published a letter to shareholders.  The body of the letter follows, but interested parties may also read the letter at Top Image's website, under "Investors" and then "IR Events."

Dear Shareholders:

2011 was a year of exceptional performance for Top Image Systems, Ltd. We grew revenues by close to one-third, doubled operating profit, and repaid all outstanding debt from our balance sheet.  In addition, during 2011 we:

• Enhanced our eFLOW Banking Platform
• Deepened market penetration of the eFLOW Banking Platform and Digital Mailroom (DMR) solutions
• Launched a business partner channel program
• Won contracts in non-core growth areas, diversifying our revenues
• Grew recurring revenue

We are committed to building on these successes and reinforcing our competitive position. In 2011, financial institutions recognized a new and increasingly high priority demand from their customers to access their bank accounts via smart phones. To meet this need, Top Image launched new mobile banking applications that enhance the eFLOW banking platform. Top Image offers a variety of applications for smart phones, including check deposit, utility bill payment and invoice payment. Checks, utility bills and invoices are easily and securely sent to the bank for deposit or payment via a camera-equipped smart phone. Our banking customers recognize considerable cost savings by fully automating receipt and processing of documents in any format, increasing speed without sacrificing accuracy.   This added functionality has been an asset globally, and we anticipate domestically, as we strengthen our focus on the United States market in the coming years. We already count CITI, Standard Charter and Deutsche Bank as global clients, and this year added the Asian-Pacific arm of another one of the largest retail banks in the United States, which recently purchased our eFLOW Banking Platform.

We saw continued demand for our Digital Mailroom (DMR) solution, which captures and classifies massive volumes of documents entering an organization and dispatches them for action. DMR was selected by a leading German Bank, a leading Insurance Company, financial outsourcing company HML, a UK-based international healthcare provider, and World's Foremost Bank, headquartered in Lincoln, Neb., a subsidiary of Cabela's Incorporated (NYSE: CAB). Organizations recognize dramatic savings on document-intensive manual labor that can be automated with DMR. We will continue to focus on DMR as a key element of our growth strategy. The DMR product has been well-received by enterprises that remain steadfast in their commitment to lowering operating costs with efficiencies gained through technology.

In addition to the elements of our growth strategy focus on the banking vertical and on the DMR solution, we also initiated a third growth driver, a global partner program. We developed this program with the goal of enhancing profitability while in parallel improving support and maximizing value for our customers worldwide. This program helps our partners expand their business and also enhances the visibility of Top Image's suite of enterprise content management solutions. We have added seven new partners to date and expect this initiative to generate approximately three million dollars in revenue over the next 12 months.

Recurring revenue is also an important part of our business, accounting for 25% of total revenues in 2011. Our contracts include high-margin annual maintenance fees, and this creates a dependable baseline of recurring revenue that becomes more and more meaningful as we grow our install base.

We also generated revenue through sales of our eFLOW invoice and census product offerings. We won contracts such as that with Treibacher Industrie AG., who use eFLOW to automate the processing of more than 40,000 invoices per year, and with CNH America, a division of Fiat International S.p.A., who process over 1,000,000 electronic invoice files annually. We also secured census contracts with Argentina, South Africa and Germany for processing of more than 580 million documents, each project typically involving a 6-month time frame. Finally, we completely paid off our convertible debt, an area that has been negatively impacting our bottom line as a financial expense line item. Repaying the outstanding debentures far in advance of our obligation demonstrates our strong commitment to attaining financial independence and stability. 

Now that Top Image is free of debt, the Company can invest an even greater percentage of its revenues back into our core business, driving the technological development and sales promotions that will maximize growth and increase profit margins.

Looking ahead, we are focused on profitable growth. To that end Top Image has zeroed in on key core, high-margin products, namely eFLOW Banking Platform and DMR, and on expanding sales through Global Partnerships. In these areas we help companies electronically manage content faster, better and cheaper, offering our customers a rapid ROI. We see no slowdown in demand from enterprises looking to reduce operating costs to save money, enhance margins and ultimately raise profitability. In that respect, we believe the United States market offers us an excellent growth opportunity. It is a market we are evaluating, where we have already seen the success of a single player with a single mobile banking product. We know banks are looking for another vendor to displace the current monopoly in this segment, to have negotiating power on price. We offer a competing product, with arguably better artificial intelligence recognition engines. Moreover, the value of our end-to-end Banking Platform incorporating mobile banking applications far exceeds that of a one-function mobile banking product. We have an excellent reputation in the global markets where we continue to operate and grow our business; at the same time we believe the market in the United States represents a sizable opportunity thus far untapped by Top Image, one that we are planning to develop in the coming year. 

In summary, 2011 was a year of strong performance for Top Image, marked by an estimated increase of over 30% in revenues, an expected increase of over 100% in operating profits and a 100% elimination of outstanding debt. We are growing rapidly and profitably while maintaining a clean balance sheet. We are also growing smartly, in that 25% of our revenue derives from recurring annual maintenance fees. Despite the 160% increase in our share price over our 52 week low, we believe the stock price is still undervalued when compared to industry and peer valuations. We continue to stay focused on executing our business plan and growing our business, and believe that over time this performance will narrow and ultimately eliminate the valuation gap.

We are very excited about the opportunities before us in 2012.

Sincerely,
Izhak Nakar, Chairman
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