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Item 9A. Controls and Procedures

2021-03-31 compared with 2020-03-30 · 1349 added, 1854 removed, 709 unchanged (82% of the section changed)

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Evaluation of Disclosure and Control Procedures

Company maintains “disclosure controls and procedures”, as such terms are defined under Exchange Act Rule 13a-15(e),

that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized

and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and

communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow

timely decisions regarding required disclosures.

The Company acknowledges that any controls and procedures can provide only reasonable

assurances of achieving the desired control objectives.

maintain “disclosure controls and procedures”, as such terms are defined under Exchange Act Rule 13a-15(e), that are

designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and

reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated

to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions

regarding required disclosures.

The Company acknowledges that any controls and procedures can provide only reasonable assurances

of achieving the desired control objectives.

have carried out an evaluation as required by Rule 13a-15(d) under the supervision of and with the participation of our management,

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process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected

by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial

reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

control over financial reporting cannot provide absolute assurance of achieving their objectives.

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weaknesses in several areas of data management and documentation.

Company’s management is composed of a small number of professionals resulting in a situation where limitations on segregation

of duties exist.

Accordingly, as a result of the material weakness identified above, we have concluded that the control deficiencies

result in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented

on a timely basis by the Company’s internal controls.

The Company continues to employ and refine a structure in which critical

accounting policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews

by executives.

In addition, the Company evaluates and assesses its internal controls and procedures regarding its financial reporting,

utilizing standards incorporating applicable portions of the Public Company Accounting Oversight Board’s 2009 Guidance for

Smaller Public Companies in Auditing Internal Controls Over Financial Reporting as necessary on an on-going basis.

has hired additional finance department staff during the year ending December 31, 2019 which allows for a higher level of segregation

and improve the Company’s overall compliance with COSO but the deficiency is still present.

The hiring of additional staff

is dependent upon the Company obtaining sufficient cash flows from operations or financings.

management is composed of a small number of professionals resulting in a situation where limitations on segregation of duties

Accordingly, as a result of the material weakness identified above, we have concluded that the control deficiencies result

in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented on

a timely basis by the Company’s internal controls.

We continue to employ and refine a structure in which critical accounting

policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews by executives.

In addition, we evaluate and assess our internal controls and procedures regarding our financial reporting, utilizing standards

incorporating applicable portions of the Public Company Accounting Oversight Board’s 2009 Guidance for Smaller Public Companies

in Auditing Internal Controls Over Financial Reporting as necessary on an on-going basis.

We have implemented a new ERP and

accounting software in 2020 that encompasses all our subsidiaries.

This software allows for a higher level of control,

better audit trail and improved segregation of duties and improves the Company’s overall compliance with

COSO but the deficiency is still present.

The hiring of additional staff is dependent upon our obtaining sufficient cash flows

from operations or financings.

the material weakness set forth above were the result of the scale of the Company’s operations and is intrinsic to its small

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Financial Officer and Director

of officers and directors

of our officers and directors

following is a brief account of the education and business experience during at least the past five years of our officers and

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Attaché

at the Embassy of Israel in Washington, DC from.

at the Embassy of Israel in Washington, DC.

He received his Bachelor of Science degree in Business Management

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In 2007, he graduated

from the Hebrew University with an Executive Master’s degree in Business Administration

specializing in Integrative Management.

from the Hebrew University with an Executive Master’s degree in Business Administration specializing in Integrative Management.

MacMillan became a director of the Company in April 2017.

a corporate communications professional with 20 years of corporate communications experience

in the global securities industry, plus 18 years of direct investment banking and related

He is a corporate communications professional with 20 years of

corporate communications experience in the global securities industry, plus 18 years of direct investment banking and related

He was a director of NTS, Inc.

since December 20, 2012 and since December

27, 2012 served as the Chairman of its Nominating and Corporate Governance Committee

until NTS’

since December 20, 2012 and since December 27, 2012 served as the Chairman of its Nominating

and Corporate Governance Committee until NTS’

sale to a private equity firm in June 2014.

Since 2010, Mr.

has served as an independent management consultant providing marketing and communications

advisory to clients.

Prior to that from 2007 until 2010, Mr.

MacMillan served as Director,

Global Communications & Marketing of AXA Rosenberg, a leading equity asset management

MacMillan has

served as an independent management consultant providing marketing and communications advisory to clients.

Prior to that from

2007 until 2010, Mr.

MacMillan served as Director, Global Communications & Marketing of AXA Rosenberg, a leading equity asset

management firm.

Prior to that, Mr.

MacMillan served in a variety of corporate communication roles

including Senior Vice President of Corporate Communications & Government Affairs

at Ameriprise Financial, Head of Corporate Communications (Americas) at Barclays Capital,

Senior Vice President of Corporate Communications of The NASDAQ Stock Market and Director

of Corporate Communications at Credit Suisse First Boston.

MacMillan previously served

as an investment banker, acquisition officer, and consultant directly involved with capital

raising, acquisitions, and financial feasibility studies.

MacMillan holds a BS in

Industrial Engineering from the University of Iowa and a Masters in Business Administration

from Harvard.

MacMillan served in a variety of corporate communication roles including Senior Vice President

of Corporate Communications & Government Affairs at Ameriprise Financial, Head of Corporate Communications (Americas) at Barclays

Capital, Senior Vice President of Corporate Communications of The NASDAQ Stock Market and Director of Corporate Communications

at Credit Suisse First Boston.

MacMillan previously served as an investment banker, acquisition officer, and consultant directly

involved with capital raising, acquisitions, and financial feasibility studies.

MacMillan holds a BS in Industrial Engineering

from the University of Iowa and a Masters in Business Administration from Harvard.

Shalem became a director of the Company in April 2017.

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Prior to that Mr.

Shalem served as

the Chief Financial Officer at Singulariteam VC since January 2014 till January 2018.

Shalem served as the

Chief Financial Officer at Singulariteam VC since January 2014 till January 2018.

He also worked as the Chief Financial Officer

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EXECUTIVE COMPENSATION

table below shows the compensation for services in all capacities we paid during the years ended December 31, 2019 and 2018 to

the individuals serving as our principal executive officers during the last completed fiscal year and our other two most highly

paid executive officers at the end of the last completed fiscal year (whom we refer to collectively as our “named executive

officers”);

and Principal Position

table below shows the compensation for services in all capacities we paid during the year ended December 31, 2020 to the individuals

serving as our principal executive officers during the last completed fiscal year and our other two most highly paid executive

officers at the end of the last completed fiscal year (whom we refer to collectively as our “named executive officers”);

Name and Principal Position

Shai Lustgarten (1)

Chief Executive Officer and interim

Chief Financial Officer (Principal Executive Officer)

Chief Executive Officer

Neev Nissenson (2)

Chief Financial Officer

Benjamin Kemper (3)

Former Chief Financial Officer

Lustgarten began his employment as the Company’s CEO on April 1, 2017.

value of the options awarded to Mr.

Lustgarten in 2018 was determined to be $241

thousand, using the Black-Scholes Option Pricing Model, which uses certain assumptions

related to risk-free interest rates, expected volatility, expected life of the stock

options or warrants, and future dividends.

Lustgarten’s salary for 2018 includes

$15 thousand in salary from HTS Image Processing, Inc.

which the Company acquired in

October 2018 and a $2 thousand car allowance for the period October to December 2018.

Nissenson was appointed as the Company’s CFO on September 5, 2019, effective October 10, 2019.

Kemper began his employment as the Company’s CFO on August 21, 2017.

The salary includes $12 thousand from HTS Image

Processing, Inc.

Kemper resigned on December 18, 2018.

fair market value of the options awarded to Mr.

Lustgarten for 2020 is $1.1 million.

Nissenson was appointed as the Company’s Chief Financial Officer in September 2019, effective October 10, 2019.

bonuses granted in the future will relate to meeting certain performance criteria that are directly related to areas within the

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to attract and retain our employees at all levels.

April 1, 2017, the Company entered into an employment agreement with our President and Chief Executive Officer, Shai Lustgarten.

The employment agreement has an initial term of two years with an initial base salary of $240 thousand per year.

has the ability to earn a performance based bonus at the discretion of the board.

Lustgarten’s employment agreement

was extended an additional two years.

September 5, 2019, the Company entered into a letter agreement with Shai Lustgarten, pursuant to which the Company and Mr.

agreed to extend the term of Mr.

Lustgarten’s employment agreement for an additional two (2) years.

As consideration and

in light of the Company’s achievements under the leadership of Mr.

Lustgarten, the Company, pursuant to its 2018 Equity

Incentive Plan, issued to Mr.

Lustgarten 50,000 shares of the Company’s common stock.

On February 27, 2020, the Company entered

into an employment agreement with Shai Lustgarten, the Company’s Chief Executive Officer, (the “Lustgarten Agreement”)

pursuant to which Mr.

Lustgarten shall continue to serve as the Company’s Chief Executive Officer.

The Lustgarten Agreement

has a four (4) year term and automatically renews for additional one (1) year periods unless either party elects to terminate

the Lustgarten Agreement.

February 2020, we entered into an employment agreement with Mr.

Lustgarten, the Company’s Chief Executive Officer, (the

“Lustgarten Agreement”) pursuant to which Mr.

Lustgarten shall continue to serve as the Company’s Chief Executive

The Lustgarten Agreement has a four (4) year term and automatically renews for additional one (1) year periods unless

either party elects to terminate the Lustgarten Agreement.

Pursuant to the Lustgarten Agreement, the Company shall pay Mr.

Lustgarten an annual base salary of

Lustgarten shall also be eligible to receive i) equity awards pursuant to the Company’s 2018 Equity Incentive

Plan (the “Plan”) and ii) certain milestone bonuses as set forth in the Lustgarten Agreement.

an annual base salary of $560,000.

Lustgarten shall also be eligible to receive i) equity awards pursuant to the Company’s

2018 Equity Incentive Plan and the 2020 Equity Incentive Plan and ii) certain milestone bonuses as set forth in

the Lustgarten Agreement.

In the event Mr.

Lustgarten’s

employment is terminated by Mr.

Lustgarten for good reason, or terminated by the Company without cause, Mr.

Lustgarten shall be

entitled to the greater of (i) the unpaid base salary or (ii) one (1) year’s base salary.

August 21, 2017, the Company entered into an employment agreement with Benjamin Kemper, the Company’s former Chief Financial

The employment agreement provided for a base salary of $130 thousand.

Kemper resigned from his position as Chief

Financial Officer on December 18, 2018.

Lustgarten assumed the role of Interim Chief Financial Officer of the Company

until Neev Nissenson joined the Company as Chief Financial Officer in October 2019.

September 5, 2019, the Company and HTS Image Ltd., the Company’s wholly-owned subsidiary, entered into an employment agreement

with Neev Nissenson to serve as the Chief Financial Officer of each the Company and HTS Image Ltd., effective October 10, 2019,

pursuant to which the Company shall pay Neev Nissenson a monthly base salary of NIS (New Israeli Shekels) 44 thousand.

Neev Nissenson

Lustgarten’s employment is terminated by Mr.

Lustgarten for good reason, or terminated

by the Company without cause, Mr.

Lustgarten shall be entitled to the greater of (i) the unpaid base salary or (ii) one (1) year’s

September 2019, the Company and HTS Image Ltd., a wholly owned subsidiary, entered into an employment agreement with Mr.

Neev Nissenson to serve as the Chief Financial Officer of each the Company and HTS Image Ltd., effective October 10, 2019, pursuant

to which the Company shall pay Mr.

Neev Nissenson a monthly base salary of NIS (New Israeli Shekels) 44 thousand.

is eligible to earn certain bonuses upon the Company’s achievement of certain performance milestones as set forth in his

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As consideration and pursuant to the Company’s 2018 Equity Incentive Plan, the Company issued

Nissenson an option to purchase 35,000 shares of the Company’s common stock at an exercise price of $5.00

the sole discretion of our Board of Directors, all officers are entitled to merit-based cash and equity bonuses.

Earned or Paid in Cash ($)

Incentive Plan Compensation

Deferred Compensation

Other Compensation

Nissenson an option to purchase 35,000 shares of the Company’s common stock at an exercise price of $5.00 per share.

Nissenson is eligible to receive equity awards pursuant to the 2020 Equity Incentive Plan.

the sole discretion of our Board, all officers are entitled to merit-based cash and equity bonuses.

Fees Earned or Paid in Cash

Option(1) Awards

Non-Equity Incentive Plan

Nonqualified Deferred Compensation

All Other Compensation

Neev Nissenson (1)

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fair value of the options awarded to Mr.

Nissenson, MacMillan and Shalem in 2019 and 2018 was determined to

be $266 thousand and $64 thousand, respectively using the Black-Scholes Option Pricing Model, which uses certain assumptions

related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends

Nissenson, Mr.

MacMillan and Mr.

Shalem in 2020 and 2019 was determined to be $100

thousand and $266 thousand, respectively using the Black-Scholes Option Pricing Model, which uses certain assumptions related

to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends

PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

employment agreement for our named executive officer generally provides that in the event of termination of such executive’s

employment agreements for our named executive officers generally provide that in the event of termination of such executive’s

employment for any reason, or if the executive resigns, the Company is required pay certain separation benefits, including (i)

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Leadership Structure and Risk Oversight

Board currently consists of four members, Shai Lustgarten, Neev Nisenson, Andrew J.

MacMillan and Yaron Shalem.

also serves as our Chief Executive Officer and Neev Nissenson also serves as our Chief Financial Officer.

William Austin Lewis

resigned from the Board in April 2017.

Miller resigned from the Board in July 2017.

Board currently consists of four members, Mr.

Shai Lustgarten, Mr.

Neev Nissenson, Mr.

MacMillan and Mr.

Lustgarten also serves as our Chief Executive Officer and Mr.

Neev Nissenson serves as our Chief Financial Officer.

of the key functions of our Board is to provide oversight of our risk management process.

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The Board determined

that Andrew J.

MacMillan and Yaron Shalem qualify as “independent directors”

MacMillan and Mr.

Yaron Shalem qualify as “independent directors”

pursuant to such rules.

Board of Directors met 4 times during 2020.

Each member of our Board of Directors

attended 100% of the total number of meetings of our Board and its committees on which he served during 2019.

Each member of our Board of Directors attended 100% of the total number of

meetings of our Board and its committees on which he served during 2020.

have three standing committees:

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We believe that all members

of our Board of Directors have been and remain qualified to serve on the committees of our Board and have the experience and knowledge

to perform the duties required of the committees.

Audit Committee consists of Yaron Shalem and Andy MacMillan, whereby Mr.

Shalem is the Chairman.

Our Board has determined that

of our Board have been and remain qualified to serve on the committees of our Board and have the experience and knowledge to perform

the duties required of the committees.

Audit Committee consists of Mr.

Yaron Shalem and Mr.

Andy MacMillan, whereby Mr.

Shalem is the Chairperson.

Our Board has determined

Shalem qualifies as an “audit committee financial expert,”

as defined under the rules of the SEC.

primary responsibility of the Audit Committee is to oversee the Company’s financial reporting process on behalf of the Board

and report the results of their activities to the Board.

The Audit Committee’s responsibilities include providing assistance

to the Board in fulfilling the Board’s oversight responsibility relating to:

primary responsibility of the Audit Committee is to oversee our financial reporting process on behalf of the Board and report

the results of their activities to the Board.

The Audit Committee’s responsibilities include providing assistance to the

Board in fulfilling the Board’s oversight responsibility relating to:

integrity of the Company’s financial statements and the related public reports,

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with the Company’s ethics policies and applicable legal and regulatory requirements.

Our Audit Committee charter is available

on the “About”

subpage of our website (www.omniq.com) under the link “Corporate Governance”.

Compensation Committee consists of Andrew J.

MacMillan, Shai Lustgarten and Yaron Shalem.

MacMillan is the Chairman.

Audit Committee charter is available on the “About”

subpage of our website (www.omniq.com) under the link “Corporate

Governance”.

Compensation Committee consists of Mr.

MacMillan, Mr.

Shai Lustgarten and Mr.

Yaron Shalem.

MacMillan serves as

Compensation Committee’s responsibilities include, among others:

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as necessary to assist with the execution of its duties and responsibilities.

Our Compensation Committee charter is

available on the “About”

subpage of our website (www.omniq.com) under the link “Corporate Governance”.

Compensation Committee charter is available on the “About”

subpage of our website (www.omniq.com) under the link “Corporate

Governance”.

Governance/Nominating Committee

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and oversee a process for an annual evaluation of the Board and its committees, including a formal assessment of each individual

Our Corporate Governance/Nominating Committee

charter is available on the “About”

subpage of our website (www.omniq.com) under the link “Corporate

Governance”.

Corporate Governance/Nominating Committee charter is available on the “About”

subpage of our website (www.omniq.com)

under the link “Corporate Governance”.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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Name and Address of Beneficial Owner

Amount of Beneficial

of Beneficial

Shai Lustgarten (Chairman and CEO) (1)

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Also includes 158,333 shares underlying warrants.

Includes 130,000 shares issuable upon exercise of options.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

issuances described in this Item 13 reflect the Company’s Reverse Split.

August 2, 2017, the Company entered into a Consulting agreement with Carlos J.

Nissensohn, a family member of a Director, and

now also an Officer, of the Company.

The terms and condition of the contract are as follows:

month term with 90 day termination notice by the Company

monthly fee of $15 thousand and a one-time signatory fee of 30,000 restricted shares

warrants to buy shares at $2.20 having a four year

life and a vesting period of 12 months in 4 quarterly and equal installments, subject to Mr.

Nissensohn’s continuous

service to the Company

case the Company procures debt financing during the term of this agreement, without any equity component, Mr.

Nissensohn shall

be entitled to 3% of the gross funds raised, however if the Company is required to pay a success fee to another external entity,

Nissensohn shall be entitled to only 2% of the gross funds raised

addition to the above, in the event of an equity financing resulting in gross proceeds of at least $3.0 million to the Company

within 24 months of the date the contract, Mr.

Nissenson shall further be entitled to certain warrants to be granted by the

Company which upon their exercise pursuant to their terms, Mr.

Nissensohn shall be entitled to receive OMNIQ shares which

represent 3% of the OMNIQ issued share capital immediately prior to the consummation of such investment.

The warrants will

carry an exercise price per warrant/share representing 100% of the closing price per share as closed in the equity financing.

This section and the issue of the warrant by OMNIQ are subject to the approval of the Board of Directors of OMNIQ.

if the Board does not approve the issuance of warrants;

Nissensohn will be entitled to a fee with the equivalent

value based on a Black Scholes valuation

addition to the above, Mr.

Nissensohn will be entitled to a $ 50 thousand onetime payment which shall be paid on the

1 st day that the OMNIQ shares become traded on the NASDAQ or NYSE Stock Market within 24 months of the date of

addition to the aforementioned, in the event that Company shall close any M&A transaction with a third party target, Mr.

Nissenson shall be entitled to a success fee in the amount equal to 3% of the total transaction price, in any combination

of cash and shares that will be determined by OMNIQ.

September 8, 2017, the Company’s board of directors approved the Company’s consulting agreement (the “Consulting

Agreement”) with YES IF (the “Consultant”), an entity controlled by Jason Griffith, the Company’s former

Chief Executive Officer and a principal stockholder.

The Consultant shall provide the Company and its controlled entities with

certain business development, managerial, measures to improve efficiency and cost savings and financial services in accordance

with the terms and conditions of the Consulting Agreement.

In exchange for its consulting services, the Consultant will receive

a monthly fee of $10 thousand for the months of September through December 2017, $15 thousand per month for the months of January

through June 2018 and $20 thousand per month for the months of July 2018 through August 2019.

As the former CEO of the Company,

the Company believes that the Consultant will be extremely beneficial to the Company in connection with its recently announced

business restructuring efforts.

September 8, 2017, the Company entered into a voting agreement with Jason Griffith pursuant to which Mr.

Griffith agreed to vote

any shares beneficially owned by him in accordance with the instructions of Shai Lustgarten, the Company’s Chief Executive

The voting proxy does not include any matters involving the creation of a new or cancellation of an existing class of

stock, a reverse split (except in connection with an uplisting of the Company’s common stock on a National Exchange), dividend

of stock or any change of control to the Company.

September 8, 2017, the Company entered into a voting agreement with Jason Griffith, whereby he committed to vote any shares beneficially

owned by him in accordance with the instructions of Shai Lustgarten, the Company’s CEO.

The Voting Agreement could result

in a change of control of the Company.

February 26, 2018, the Company entered into a lease termination agreement with David and Kathy Marin whereby it canceled the lease

for the premises located at 12272 Monarch St., Garden Grove, California effective as of April 20, 2018.

February 28, 2018, the Company entered into two settlement agreements with David and Kathy Marin (the “Marin Settlement

Agreements”).

Pursuant to the first Marin Settlement Agreement (the “Marin Settlement Agreement I”), the Company

and the Marins agreed to reduce the Company’s purchase price for all of the capital stock of Bar Code Specialties, Inc.,

which was acquired by the Company from the Marins in November 2014.

In the 2014 acquisition, the Company had issued David Marin

a promissory note for $11 million of which an aggregate of $10.7 million (the “Owed Amount”) was outstanding as of

February 26, 2018 which includes accrued interest earned but not paid.

Pursuant to the Marin Settlement I Agreement, the amount

of the indebtedness owed to Marin was reduced by $9.5 million bringing the total amount owed to $1.2 million.

Section 3.1 of the

original note was amended to provide that the Company shall pay the Marins 60 monthly payments of $20 thousand each commencing

the earlier of (i) October 26, 2018 and (ii) the date that the Company’s obligation to Scansource, Inc., currently in the

amount of $2.8 million is satisfied and all amounts currently in default under the credit agreement with Scansource (currently

approximately $6.0 Million) is reduced to $2.0 million.

The Marins released their security interest against the Company.

In connection

with the $9.5 million reduction in the purchase price, the Company issued the Marins 3 year warrants to purchase an aggregate

of 150,000 shares of Common Stock at an exercise price of $4.00 per-share.

February 28, 2018, the Company entered into an additional settlement agreement with the Marins (the “Marin Settlement Agreement

II”) whereby the Company settled a promissory note owed to the Marins in the original principal amount of $100 thousand

which currently had a balance of $111 thousand in its entirety in exchange for an aggregate of 85,000 shares of the Company’s

Series C Preferred Stock.

The Series C Preferred Shares outstanding are convertible into common stock at the rate of 20 Preferred

Shares to one share of common stock.

The Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share

($20.00 per 20 shares of Preferred Stock which convert to one share of common stock) and automatically converts into Common Stock

at $1.00 per share ($20.00 per 20 shares of Preferred Stock which convert to one share of common stock) in the event that the

Company’s common stock has a closing price of $30 per share for 20 consecutive trading days.

The Preferred Stock pays a

6% dividend commencing two years from issuance.

During the first two years, the Series C Preferred Stock shall neither pay nor

accrue the dividend.

The Company also agreed to transfer title to a vehicle that was being utilized by Mr.

Marin to David Marin.

In exchange therefor, the $100 thousand Note and the accrued interest thereon was cancelled in its entirety.

February 28, 2018, the Company entered into a settlement agreement with Kurt Thomet whereby the Company settled its indebtedness

Thomet in the current amount of $5.4 million in full in exchange for 60 monthly payments of $13 thousand each commencing

the earlier of (i) October 26, 2018 or (ii) the date when the Company’s obligation under its promissory note with Scansource,

currently in the amount of $2.8 million is satisfied and all amounts currently due under the credit agreement with Scansource

(currently approximately $6.0 million) is reduced to $2.0 million.

In addition, the Company issued Mr.

Thomet an aggregate of

25,000 shares of restricted common stock and 1,000,000 shares of Series C Preferred Stock with the same rights and restrictions

as described above in the description of the Marin Settlement II Agreement.

February 28, 2018, the Company entered into a settlement agreement with George Zicman whereby the Company settled its indebtedness

Zicman in the current amount of $1.3 million in full in exchange for 60 monthly payments of $3 thousand each commencing

the earlier of (i) October 26, 2018 or (ii) the date when the Company’s obligation under its promissory note with Scansource,

currently in the amount of $2.8 million is satisfied and all amounts currently due under the credit agreement with Scansource

(currently approximately $6.0 million) is reduced to $2.0 million.

In addition, the Company issued Mr.

Zicman an aggregate of

5,000 shares of common stock and 600,000 shares of Series C Preferred Stock with the same rights and restrictions as described

above in the description of the Marin Settlement II Agreement.

of the Marins, Thomet and Zicman entered into a voting agreement with the Company whereby they agreed to vote any shares of common

stock beneficially owned by them and also agreed to a leakout restriction whereby they each agreed not to sell more than 10% of

the common stock beneficially owned during any 30-day period.

June 7, 2018, the Company entered into a settlement agreement (the “Settlement Agreement”) with Jason Griffith, a

creditor and principal stockholder of the Company.

Griffith is the owner of a promissory note in the principal amount of $1.25

million plus he is owed accrued interest of $125 thousand and is owed an additional $215 thousand of accrued dividends on his

Series C Preferred Stock (the $1.6 million as calculated above is collectively referred to as the “Owed Amount”).

Pursuant to the Settlement Agreement, Griffith will convert the Owed Amount into 430,000 shares of the Company’s restricted

common stock and the Owed Amount will be deemed satisfied in full.

Griffith will continue to retain ownership of his 1,800,000

shares of Series C Preferred Stock except that he agrees that all accrued dividends are deemed satisfied and no dividends will

be payable or will accrue on these preferred shares until one year from the date of the Settlement Agreement.

The Series C Preferred

Shares outstanding are convertible into common stock at the rate of 20 Preferred Shares to one share of common stock.

C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of Preferred Stock which

convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per 20 shares of

Preferred Stock which convert to one share of common stock) in the event that the Company’s common stock has a closing price

of $30 per share for 20 consecutive trading days.

Griffith has agreed that he will not publicly sell more than 10% of any Shares

of Common Stock beneficially owned by him in any 30-day period.

October 5, 2018, the Company entered into the HTS Purchase Agreement with Walefar and Campbeltown, (Walefar and Campbeltown are

collectively referred to as the “Sellers”).

Pursuant to the HTS Purchase Agreement, the Company purchased 100% of

the capital stock of HTS from the Sellers.

As consideration, the Company (i) issued to the Sellers 1,122,648 shares of

the Company’s common stock, having a value of $5.3 million based on the average closing price of the common stock for the

20 days’

preceding the HTS Purchase Agreement (the “Per Share Value”), (ii) cash in the amount of $300 thousand,

and (iii) a 12 month convertible promissory note with a principal amount of $700 thousand and an interest rate of six percent

(6%) per year.

The note also provides the Sellers the right to convert all or any portion of the then outstanding and unpaid principal

amount and interest into fully paid and non-assessable shares of the Company’s common stock at a conversion price of $4.72.

The HTS Purchase Agreement constitutes a “related party transaction”

because of Company director Shai Lustgarten’s

position as Chief Executive Officer of HTS and stock ownership in HTS.

Additionally, Campbeltown is a “related party”

because Carlos Jaime Nissenson, a beneficial owner of Campbeltown, is a consultant to the Company, a principal stockholder of

the Company, and father of Company director Neev Nissenson.

Carlos Jaime Nissenson was also a stockholder and director of HTS.

Pursuant to the HTS Purchase Agreement, Shai Lustgarten received 561,324 shares of the Company’s common stock and

Carlos Jaime Nissenson received 561,324 shares of the Company’s common stock.

May 29, 2019, the Company, Campbeltown and Walefar entered into an Amendment to the HTS Purchase Agreement (the “Amendment”),

which provided for an adjustment to the number of shares of common stock issued to Walefar and Campbeltown in the acquisition

Pursuant to the Amendment, Campbeltown and Walefar agreed to return for cancelation 277,116 and 277,116

shares of common stock respectively.

This Amendment reduced the amount of shares issued in the acquisition to 568,415 shares

from 1,122,648 shares and the amount of share consideration to approximately $2.7 million from approximately $5.3 million.

This adjustment was made as a result of a correction in the calculation of working capital and other share give back provisions

of the HTS Purchase Agreement.

This Amendment also reduces the Company’s issued and outstanding common stock to 3,850,451

from 4,404,684 as of June 4, 2019.

February 2020, OMNIQ entered into a consulting agreement with Mr.

Nissensohn and/or an entity under his control, a consultant

to the Company and principal stockholder, (the “Nissensohn Agreement”) pursuant to Mr.

Nissensohn and/or

an entity under his control will provide certain consulting services to the Company.

The Nissensohn Agreement has a four (4) year

term and automatically renews for additional one (1) year periods unless either party elects to terminate the Nissensohn Agreement.

Pursuant to the Nissensohn Agreement, we will pay Mr.

Nissensohn a monthly fee of $30,000.

Nissensohn shall also be eligible

to receive certain milestone bonuses as set forth in the Nissensohn Agreement.

Nissensohn is a principal stockholder of the

Nissensohn is the father of Neev Nissenson, our CFO and board member.

September 2019, the Company entered into a letter agreement with Mr.

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to extend the term of Mr.

Nissensohn’s and/or an entity under his control’s consulting agreement, entered into on

August 2, 2017, for an additional two (2) years.

Nissensohn’s and/or an entity under his control’s consulting agreement, for an additional

two (2) years.

As consideration and in light of Mr.

Nissensohn’s and/or an entity under

his control’s past consulting services which the Company believes were essential to its recent achievements, the Company,

pursuant to its 2018 Equity Incentive Plan, issued to Mr.

Nissensohn and/or an entity under his control 27,500 shares of

the Company’s common stock.

On February 27, 2020, the Company entered

into a consulting agreement with Mr.

Nissensohn and/or an entity under his control, a consultant to the Company and

principal stockholder, (the “Nissensohn Agreement”) pursuant to which Mr.

Nissensohn and/or an entity under

his control shall provide certain consulting services to the Company.

The Nissensohn Agreement has a four (4) year term and automatically

renews for additional one (1) year periods unless either party elects to terminate the Nissensohn Agreement.

Pursuant to the Nissensohn

Agreement, the Company shall pay Mr.

Nissensohn a monthly fee of $30,000.

Nissensohn shall also be eligible to receive certain

milestone bonuses as set forth in the Nissensohn Agreement.

Nissensohn is a principal stockholder of the Company.

Nissensohn’s and/or an entity under his control’s past consulting

services which the Company believes were essential to its achievements, the Company, pursuant to its 2018 Equity Incentive Plan,

issued to Mr.

Nissensohn and/or an entity under his control 27,500 shares of the Company’s common stock.

conflicts of interest may exist between the Company and its management, and conflicts may develop in the future.

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firm to provide tax compliance services.

fees shown in the table under the 2019 column reflect fess billed to us by RBSM and Haynie & Company while the 2018 column

reflect fees billed only by RBSM.

fees shown in the table under the 2019 column reflect fees billed to us by RBSM and Haynie & Company while the 2020

column reflects fees billed by multiple firms.

Fiscal Year Ended

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Our Audit Committee approved all services that our independent accountants provided to us in the past two fiscal years.

YOU CAN FIND ADDITIONAL INFORMATION

have filed with the Commission this Annual Report on Form 10-K including exhibits.

You may read and copy all or any portion of

any reports, statements or other information in the files at Commission’s Public Reference Room located at 100 F Street,

NE., Washington, DC 20549, on official business days during the hours of 10 a.m.

can request copies of these documents upon payment of a duplicating fee by writing to the Commission.

You may call the Commission

at 1-800-SEC-0330 for further information on the operation of its public reference room.

The Company’s filings, including

this Annual Report on Form 10-K, will also be available to you on the website maintained by the Commission at http://www.sec.gov .

The Company’s website is located

at http://www.omniq.com.

The Company’s website and the information to be contained on that site, or connected to

that site, are not part of or incorporated by reference into this filing.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed under pages F-1 through F-26 and are included as part of this Form 10-K:

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENT OF STOCKHOLDERS’

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENT OF STOCKHOLDERS’

EQUITY (DEFICIT)

STATEMENTS OF CASH FLOWS

TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial statement schedules are omitted as they are not applicable.

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TO CONSOLIDATED FINANCIAL STATEMENTS

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENT OF STOCKHOLDERS’

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENT OF STOCKHOLDERS’

EQUITY (DEFICIT)

STATEMENTS OF CASH FLOWS

TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and Stockholders of

and subsidiaries (f/k/a Quest Solution, Inc.)

the Board of Directors and

Stockholders of OMNIQ Corp

on the Financial Statements

have audited, before the effects of the adjustments to retrospectively apply the impact of the reverse stock split described in

Note 3, the accompanying consolidated balance sheet of OMNIQ Corp.

and subsidiaries (f/k/a Quest Solution, Inc.) (the Company)

as of December 31, 2018, and the related consolidated statements of comprehensive income (loss), stockholders’

and cash flows for the year ended December 31, 2018, and the related notes, before the effects of the adjustments discussed in

Note 3 are not presented herein, (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated

financial statements, before the effects of the adjustments to retrospectively apply the impact of the reverse stock split described

in Note 3, the present fairly, in all material respects, the financial positions of the Company as of December 31, 2018, and the

consolidated results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting

principles generally accepted in the United States of America.

were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the impact of the reverse

stock split described in Note 3 and, accordingly, we do not express an opinion or any other form of assurance about whether such

adjustments are appropriate and have been properly applied.

Those adjustments were audited by Haynie & Company.

Company's Ability to Continue as a Going Concern

accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit and recurring losses.

These facts and others raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s

continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely

evaluation of the events and conditions and management’s plans regarding these matters are also described in the Management’s

Discussion and Analysis of Financial Condition and Results of Operations to the consolidated financial statements.

The consolidated

financial statements do not include any adjustments that might result from the outcome of this uncertainty.

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an

opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered

with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to

the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and

Exchange Commission and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but

not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion.

have served as the Company’s auditor from 2015 to 2018

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of OMNIQ Corp (formerly Quest Solution, Inc.)

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheet of OMNIQ Corp.

and Subsidiaries (the Company), formerly known as Quest Solution, Inc., as of December 31, 2019,

and the related consolidated statements of operations, stockholders’

equity (deficit), and cash flows for the year ended

December 31, 2019, and the related notes (collectively referred to as the financial statements).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019,

and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles

have audited the accompanying consolidated balance sheets of OMNIQ Corp.

and Subsidiaries (the Company) as of December

31, 2020 and 2019, and the related consolidated statements of operations, stockholders’

equity (deficit), and cash

flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively

referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the

financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows

for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles

generally accepted in the United States of America.

We have also audited the adjustment to

the financial statements of the Company as of and for the year ended December 31, 2018 to retrospectively apply the reverse stock

split described in Note 3 to the financial statements.

In our opinion, such adjustment is appropriate and has been properly applied.

We were not engaged to audit, review or apply any procedures to the financial statements of the Company as of and for the year

ended December 31, 2018 other than with respect to the adjustment and, accordingly, we do not express an opinion or any other

form of assurance on the financial statements of the Company as of and for the year ended December 31, 2018 taken as a whole.

Consideration of the Company’s

Ability to Continue as a Going Concern

The accompanying financial statements have

been prepared assuming that Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the

Company has a deficit in stockholders’

equity, and has sustained recurring losses from operations.

This raises substantial

doubt about the Company’s ability to continue as a going concern.

Management’s plans with regard to these matters

are also described in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required

to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

Consideration

of the Company’s Ability to Continue as a Going Concern

accompanying financial statements have been prepared assuming that Company will continue as a going concern.

As discussed in Note

3 to the financial statements, the Company has a deficit in stockholders’

equity, and has sustained recurring losses

from operations.

This raises substantial doubt about the Company’s ability to continue as a going concern.

Management’s

plans with regard to these matters are also described in Note 3.

The financial statements do not include any adjustments

that might result from the outcome of this uncertainty.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public

Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance

with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to

error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits, we are required to obtain an understanding of internal control over financial reporting,

but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides

a reasonable basis for our opinion.

/s/ Haynie & Company

Salt Lake City, Utah

March 30, 2020

We have served as the Company’s auditor since 2019.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis,

evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial

We believe that our audits provide a reasonable basis for our opinion.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the financial statements that were

communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of

critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by

communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or

disclosures to which they relate.

Refer to Note 2 to the consolidated financial statements

Company has goodwill of $14.7 million as of December 30, 2020.

The Company evaluates its goodwill at least annually or more frequently

when events or changes in circumstances indicate the carrying value may not be recoverable.

The Company performed a goodwill analysis

by calculating the fair value of its operating segment using both an income and market approach and comparing it to the carrying

amount of its goodwill.

The income approach employed a discounted cash flow using a forecast developed by management.

approach used information from comparable companies to calculate a value using multiples of revenue and earnings before interest,

taxes, depreciation, and amortization.

These valuation methods require management to make significant estimates and assumptions

related to projected cash flows.

No impairment was recorded by the Company for the year ended December 31, 2020

identified goodwill as a critical audit matter because of the significant estimates and assumptions made by management to estimate

fair value, including the impact of forecasted growth, and the difference between the fair values and the carrying values as of

December 31, 2020.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve

our fair value specialist, when performing audit procedures to evaluate the reasonableness of management’s estimates and

assumptions related to certain assumptions within the projected cash flows.

the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the

consolidated financial statements.

These procedures included, among others, gaining an understanding of management's process for

developing the fair value estimate.

We also evaluated the expertise, qualifications, and independence of management’s specialist

engaged to complete the evaluation.

We used professionals inside our firm with specialized skills and knowledge to assess the

Company’s methodology.

In evaluating the Company’s assumptions, we compared them to historical results, financial

information subsequent to year end, and to customer orders to be filled.

Finally, we considered the sensitivity of their cash

flow model assumptions by assessing different scenarios.

Lake City, Utah

have served as the Company’s auditor since 2019.

BALANCE SHEETS

of December 31,

( In thousands, except share

and per share data)

( In thousands, except share and per share data)

Current assets

and cash equivalents

Accounts receivable,

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses

Other current assets

current assets

Property and equipment,

net of accumulated depreciation of $2,195 and $2,037, respectively

Trade name, net

of accumulated amortization of $2,932 and $2,585, respectively

Customer relationships,

net of accumulated amortization of $6,578 and $5,076, respectively

Other intangibles,

net of accumulated amortization of $185 and $33, respectively

Total current assets

Property and equipment, net of accumulated depreciation of $600 and

$2,195, respectively

Trade name, net of accumulated amortization of $3,362 and

$2,932, respectively

Customer relationships, net of accumulated amortization of $8,111

and $6,578, respectively

Other intangibles, net of accumulated amortization of $382

and $185, respectively

Cash, restricted

LIABILITIES AND

STOCKHOLDERS’

Right of Use asset

LIABILITIES AND STOCKHOLDERS’

Current liabilities

Accounts payable

and accrued liabilities

Accounts payable and accrued liabilities

Line of credit

Accrued payroll

and sales tax

Notes payable, related

parties –

Accrued payroll and sales tax

Notes payable, related parties –

current portion

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Long term liabilities

Notes payable, related

party, less current portion

Accrued interest

and accrued liabilities, related party

Notes payable, less

current portion

Lease liability

Other long term

Notes payable, related party, less current portion

Accrued interest and accrued liabilities, related party

Notes payable, less current portion

Lease liability, less current portion

Other long term liabilities

Total liabilities

Stockholders’

Series A Preferred

equity (Deficit)

Series A Preferred stock;

0.001 par value;

1,000,000 shares designated, 0 shares issued and outstanding

Series B Preferred

Series B Preferred stock;

0.001 par value;

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0.001 par value;

15,000,000 shares designated,

4,828,530 shares issued and outstanding

5,000,000 shares

designated, 2,145,030 and 4,828,530 shares issued and Outstanding, respectively

Common stock;

0.001 par value;

15,000,000 shares authorized;

4,684,736 and 3,960,405 shares issued and outstanding, respectively.

Common stock;

554,233 shares to be received

Common stock to

be repurchased by the Company

Additional paid-in

Additional paid-in capital

Accumulated (deficit)

Accumulated other

comprehensive loss

stockholders’

Total liabilities

and stockholders’

accompanying unaudited notes to the financials should be read in conjunction with these condensed

consolidated financial statements.

Accumulated other comprehensive loss

Total stockholders’

Total liabilities and stockholders’

equity (deficit)

accompanying unaudited notes to the financials should be read in conjunction with these condensed consolidated financial

STATEMENTS OF OPERATIONS

the Years Ended December 31,

(In thousands,

except share and per share data)

Total Revenues, net

Cost of goods sold

thousands, except share and per share data)

Revenues, net

of goods sold

Operating expenses

of goods sold

and development

General and Administrative

Salary and employee

Depreciation and

Total operating

Loss from operations

Other income (expenses):

Interest expense

from operations

income (expenses):

(expenses) income

Total other expense

Net loss before income taxes

(Provision) benefit for Income Taxes

tax benefit (provision)

Net loss from continuing operations

stock –

other expense

loss before income taxes

benefit for Income Taxes

income tax benefit (provision)

loss from continuing operations

Preferred stock –

series C dividend

Net loss attributable to the common

Foreign currency

translation adjustment

Other comprehensive

income (loss)

Net loss per share –

Weighted average

number of common shares outstanding –

loss attributable to the common stockholders

currency translation adjustment

comprehensive income (loss)

loss per share –

average number of common shares outstanding –

basic and diluted

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(In thousands)

December 31, 2017

Board Issuances

Dividend on Class C

ESPP Stock Issuance

Stock-based compensation

options and warrants

Stock Based Compensation

Debt Settlements

Shares issued for acquisition

Shares to be received

Accumulated other comprehensive

(loss) income

December 31, 2018

Income (Loss)

Balance, December 31, 2018

Dividend on Class C

Dividend on Class C Shares

ESPP Stock Issuance

Stock-based compensation

Stock-based compensation –

options, warrants, issuances

Stock and warrant issuances,

net of issuance costs

Purchase price adjustment

Stock and warrant issuances, net of issuance costs

Purchase price adjustment –

shares to be received

1 unchanged sentence

Conversion of debt

(loss) income

December 31, 2019

Balance, December 31, 2019

Dividend on Class C Shares

ESPP Stock Issuance

Stock-based compensation –

options, warrants, issuances

Stock and warrant issuance for services

Stock and warrant issued for Acquisition

Cumulative Translation Adjustment

of stock options and warrants

Conversion of debt

Balance, December 31, 2020

accompanying notes to the financials should be read in conjunction with these financial statements.

1 unchanged sentence

the Years Ended December 31,

(In thousands,

except share and per share data)

(In thousands, except share and per share data)

Cash flows from operations

Adjustments to reconcile net loss to

net cash provided by operating activities:

Change in deferred

tax allowance

Adjustments to reconcile net loss to net cash provided by operating activities:

Early extinguishment of debt

Stock-based compensation

Excess fair value

of common stock issued for debt conversion

Depreciation and

Stock and warrant issued for services

Depreciation and amortization

Amortization of ROU asset

Write-off of other

Amortization of

debt discount

Changes in operating assets and liabilities:

1 unchanged sentence

Prepaid expenses

Accounts payable

and accrued liabilities

Accrued interest

and accrued liabilities, related party

Accrued payroll

and sales taxes payable

Accounts payable and accrued liabilities

Accrued interest and accrued liabilities, related party

Accrued payroll and sales taxes payable

Lease liability

Other liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities

Restricted cash

Purchase of property

and equipment

Cash paid for acquisition

net of cash acquired

Cash from sale of

Net cash provided by (used in) investing

Purchase of property and equipment

Net cash provided by (used in) investing activities

Cash flows from financing activities

Proceeds from ESPP

stock issuance

Proceeds from sale

of common stock

Payments on notes/loans

Proceeds from the

issuance of notes/loans payable

Proceeds from (payments

on) line of credit

Net cash used in financing activities

Net increase (decrease) in cash

Proceeds from ESPP stock issuance

Proceeds from sale of common stock

Payments on notes/loans payable

Proceeds from the issuance of notes/loans payable

Proceeds from (payments on) line of credit

Net cash (used in) provided by financing activities

Net increase in cash

Foreign currency translation adjustment

Cash, beginning

Cash beginning of year

Cash, end of year

Net increase (decrease) in restricted

Restricted cash,

beginning of year

Restricted cash,

Cash paid for interest

1 unchanged sentence

Supplementary for non-cash flow information:

Stock issued for

debt settlement

Accounts payable

converted to notes payable

Stock issued for services

Accounts payable converted to notes payable

Debt conversion

Notes payable –

related party and accrued interest converted to common stock

Change in terms

of accounts payable

Change in terms of accounts payable

accompanying notes are integral to these consolidated financial statements.

1 unchanged sentence

the Years Ended December 31, 2020 and 2019

HISTORY AND ORGANIZATION OF THE COMPANY

(formerly Quest

Solution, Inc.), a Delaware corporation (“OMNIQ”

or the “Company”), was incorporated in

Prior to 2008, the Company was involved in various unrelated business activities.

From 2008-2014, the Company was

involved in multiple businesses inclusive of an oil and gas investment company.

Due to changes in market conditions,

management determined to look for acquisitions which were positive cash flow and would provide immediate shareholder value.

In January 2014, the first such acquisition was completed of Quest Marketing Inc.

(dba Quest Solution, Inc.) (“Quest

Marketing”).

is a national mobility systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile

The Company takes a consultative approach by offering end to end solutions that include hardware, software, communications

and full lifecycle management services.

The professionals simplify the integration process and deliver the solutions to our customers.

Motorola, Intermec, Honeywell, Panasonic, AirWatch, Wavelink, SOTI and Zebra are major suppliers which Quest Solution uses in

the solutions we provide to our customers.

Company’s business strategy developed into leveraging management’s relationships in the business world for investments

for the Company.

The Company intends to continue with its acquisition of existing companies with revenues and positive cash flow.

May 2014, the Board of Directors voted to seek approval from the shareholders of the Company for a name change from Amerigo Energy,

to Quest Solution, Inc.

The Company received the approval from a majority of its stockholders and filed the amendment to

its Articles of Incorporation with the State of Delaware.

The name change became effective by the State of Delaware on May 30,

The Company also requested a new stock symbol as a result of the name change and we were assigned our new trading symbol

“QUES”.

November 2014, the Company acquired 100% of the shares of Bar Code Specialties, Inc.

(“BCS”) located in Southern California.

BCS is a national mobility systems integrator and label manufacturer with a focus on warehouse and distribution industries.

the combination of the two companies, the Company has been exploring efficiencies in all facets of the businesses and learning

best practices from both executive teams.

On December 31, 2016, the Company merged BCS into Quest Marketing to form one US legal

entity as part of its streamlining efforts.

October 1, 2015, the Company acquired the interest in ViascanQdata, Inc.

(“Viascan”), a Canadian based operation in

the same business line as Quest and their CEO, Gilles Gaudreault, was appointed the CEO of Quest, with our then CEO, Tom Miller,

remaining as President and Chairman of the Board.

During the 2016 fiscal year, Viascan changed its corporate name to Quest Solution

September 30, 2016, the Company sold all of the outstanding shares of Quest Solution Canada Inc., and the consideration received

was $1.0 million in cash of which $577 thousand was received at closing and the balance was required to be paid before April 30,

In addition, the Company redeemed 1 share of Preferred Class B Stock and 1,839,030 shares of Preferred Class C Stock of

the Company, as well as the accrued dividend of $32 thousand thereon.

Lastly, Quest Exchange Ltd., a wholly owned subsidiary of

the Company, redeemed 5,200,000 exchangeable shares as part of the divestiture.

Additionally,

as part of the transaction, Viascan Group Inc., the acquirer, assumed $1.0 million of liabilities which the Company had at September

Other consideration that is part of the transaction included:

Full release from five employment contracts, inclusive of the former CEO, Gilles Gaudreault.

This release included cancelation

of the contracts as well as the deferred salary and signing bonus provisions which would have inured to the employee.

The Company canceled the intercompany debts of approximately $7.0 million as well.

The Company will also receive a contingent

consideration of 15% of the net value proceeds, up to a maximum of $2.3 million, received upon a liquidity event or a change

of control of Quest Solution Canada Inc.

for a period of 7 years subsequent to the transaction.

The Company also negotiated a right of first refusal for any offer to purchase Quest Solution Canada Inc.

for a 7 year period.

The assets sold consisted primarily of accounts receivable, inventories, property and equipment, and other assets.

also assumed certain accounts payable and accrued liabilities.

operations of Quest Solution Canada Inc.

have been classified as a discontinued operation and the assets and liabilities of Quest

Solution Canada Inc.

have been classified as held for disposal.

October 5, 2018, the Company entered into the HTS Purchase Agreement with Walefar and Campbeltown, (Walefar and Campbeltown are

collectively referred to as the “Sellers”).

Pursuant to the HTS Purchase Agreement, the Company purchased 100% of

the capital stock of HTS Image Processing, Inc.

(“HTS”) from the Sellers.

Also, the Company acquired HTS’s wholly

owned subsidiaries HTS USA, Inc.

and Teamtronics Ltd (“TT Ltd”).

April 4, 2019, the Company entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”)

with accredited investors (the “Purchasers”).

Pursuant to the Securities Purchase Agreement, on April 9, 2019 (the

“Closing Date”), the Company sold an aggregate, with the Conversions included, of $5.0 million of units (the “Units”)

resulting in gross proceeds of $5.0 million, before deducting placement agent fees and offering expenses (the “Offering”).

The individual Unit purchase price was $0.30.

Each Unit is comprised of one share of the Company’s common stock, $0.001

par value per share (the “Common Stock”), and a warrant to purchase one share of Common Stock, and, as a result of

the Offering, the Company issued 833,333 shares of Common Stock (the “Shares”) and warrants (the “Warrants”)

to purchase 833,333 shares of Common Stock (the “Warrant Shares”) at an exercise price equal to $7.00 per Warrant

Share, which Warrants are exercisable for a period of five and one-half years from the issuance date.

Both Shai Lustgarten, the

Company’s Chief Executive Officer, and Carlos J.

Nissenson, a consultant to and principal stockholder of the Company, participated

in the Offering by converting $200 thousand each of unpaid principal owed to them from the HTS acquisition (the “Conversions”),

by the Company in exchange for Shares and Warrants on the same terms as all other Purchasers.

With the Conversions included, the

Offering resulted in gross proceeds of $5.0 million.

As a result of the Conversions, a principal amount of $150 thousand is owed

to each Walefar and Campbeltown respectively under the note issued to them as partial consideration in the sale of HTS Image Processing

to the Company on October 5, 2018.

On May 29, 2019, the Company, Campbeltown

and Walefar entered into an Amendment to the HTS Purchase Agreement (the “Amendment”), which provided for an adjustment

to the number of shares of common stock issued to Walefar and Campbeltown in the acquisition of HTS.

Pursuant to the Amendment,

Campbeltown and Walefar agreed to return for cancelation 277,166 and 277,116 shares of common stock respectively.

This Amendment

reduced the number of shares issued in the acquisition to 568,415 shares from 1,122,648 shares and the amount of share consideration

to approximately $2.7 million from approximately $5.3 million.

This adjustment was made as a result of a correction in the calculation

of working capital and other share give back provisions of the HTS Purchase Agreement.

This Amendment also reduced the Company’s

issued and outstanding common stock to 3,850,451 from 4,404,684 as of June 4, 2019.

On November 18, 2019, the Company filed

an amendment to its Certificate of Incorporation, as amended with the Secretary of State of Delaware, pursuant to which the Company

i) changed its name from Quest Solution, Inc.

to OMNIQ Corp.

(ticker symbol OMQS) and ii) effected a reverse split of its common

effective November 20, 2019 (the “Reverse Split”).

The Amendment provides that every twenty shares of the Company’s

issued and outstanding common stock will automatically be combined into one issued and outstanding share of common stock, without

any change in par value per share.

As a result of the Reverse Split, proportionate adjustments have been made to the per share

exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options and warrants issued by the

Company and outstanding immediately prior to the Effective Date, which resulted in a proportionate decrease in the number of shares

of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock units

and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock

options and warrants.

In addition, the number of shares authorized for future grant under the Company’s equity incentive/compensation

plans immediately prior to the Effective Date have been reduced proportionately.

All share and per share amounts in the financial

statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split.

GOING CONCERN

accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As of December 31, 2019, the Company had a working capital deficit of $20.2 million and an accumulated deficit of $45.1

These facts and others raise substantial doubt about the Company’s ability to continue as a going concern.

Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations

on a timely basis.

Management’s

plan to eliminate the going concern situation includes, but is not limited to, the following:

continuation of improving cash flow by maintaining moderate cost reductions (subsequent to aggressive cost reduction actions already

taken in 2018 and continued in 2019);

the accounts receivable factoring line of credit;

lower interest rates on outstanding debt;

issuances of additional common stock;

creation of additional sales and profits across its product lines, and the obtaining of sufficient financing to restructure current

debt in a manner more in line with the Company’s improving cash flow and cost reduction successes;

diversification in the sourcing and procurement of materials and finished goods.

The addition of two new key vendors in 2018 increased

the Company’s purchasing power by adding credit availability in an amount just under $5.0 million;

the acquisition of HTS in October 2018, the Company has in its portfolio of products a computer vision technology that is based

on AI and machine learning concepts.

These solutions have a higher gross profit that will provide an increase in cashflow

on a consolidated basis.

The Company plans for these products to be a significant revenue source in 2019.

Also with the acquisition

of HTS, the Company acquired an operating facility with the ability for light manufacturing and assembling components.

can use HTS’s assembling facility to reduce the cost of goods and increase profit margins;

April 2019, the Company raised approximately $5.0 million in gross proceeds from the sale of 833,333 shares of the Company’s

common stock.

PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OF CONSOLIDATION

The consolidated financial statements

include the financial position and results of operations of OMNIQ Corp.

and its wholly-owned subsidiaries Quest Marketing, Inc.,

Quest Exchange Ltd., and HTS Image Processing, Inc., collectively referred to herein as “we”

NATURE OF OPERATIONS

Corp., a Delaware corporation, formerly Quest Solution, Inc., together with its wholly owned subsidiaries, referred to herein

as “we,”

“us,”

and “our”

(“OMNIQ”

or the “Company”), was incorporated

Since its incorporation, the Company has been involved in various lines of business.

2008 and to 2013, we were in the business of developing oil and gas reserves.

In January 2014, we determined it was in the best

interest of our stockholders to focus on operating companies with a track record of positive cash flows and larger existing revenue

Our strategy developed into leveraging management’s relationships in the business world for investments for the Company.

2014, we have made the following acquisitions resulting in us becoming a leading provider of computerized and machine vision image

processing solutions:

Solutions, Inc.

(January 2014)

Code Specialties, Inc.

(November 2014)

ViascanQdata,

Inc (October 2015 –

later sold in September 2016)

Image Processing, Inc.

(October 2018)

Consulting LLC.

(February 2020)

use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real time surveillance and monitoring

for supply chain management, homeland security, public safety, traffic & parking management and access control applications.

The technology and services we provide helps our clients move people, assets and data safely and securely through airports, warehouses,

schools, national borders, and many other applications and environments.

We offer end-to-end solutions that

include hardware, software, communications, and full lifecycle management services.

We are an established manufacturer and distributor

of barcode labels, tags, and ribbons, as well as RFID labels and tags.

Our highly tenured team of professionals has the knowledge

and expertise to simplify the integration process for our customers, and our team delivers proven problem-solving solutions backed

by numerous customer references.

We offer comprehensive packaged and configurable software and we are a leading provider of best-in-class

mobile and wireless equipment.

customers include government agencies and leading Fortune 500 companies from diverse sectors, including healthcare, food and beverage,

manufacturing, retail, distribution, transportation and logistics, and oil, gas, and chemicals.

outbreak of the COVID-19 pandemic continues to affect the United States of America and the world, including in the primary regions

Many State Governors issued temporary Executive Orders in 2020, that, among other stipulations, effectively limited

in-person work activities for most industries and businesses having the effect of suspending or severely curtailing operations.

Many of these orders are in the process of being lifted..

To date, we have not incurred any significant interruptions to our day-to-day

operations or supply chain, except some of our employees have or are working remotely.

In response to the COVID-19 pandemic, we

proactively implemented certain measures to strengthen cash flow, manage costs, strengthen liquidity and enhance employee safety.

These measures included the reduction of payroll costs, a reduction in capital expenditures and other discretionary spending,

the elimination of most business travel and restriction of visitors to our corporate office, enhanced cleaning and disinfection

procedures at our corporate office and branch locations, promotion of social distancing and the wearing of face coverings (masks)

at our corporate office and branch locations, and requirements for employees to work from home where possible.

the impact of COVID-19 became more widespread in March 2020, our sales volumes began to decline from previous years.

revenues for the year ended December 31, 2020, were 3.48% lower than those of the year ended December 31, 2019.

COVID-19 had a

more significant impact on our gross margin.

Total gross margin percentage dropped 5% for the year ended December 31, 2020 compared

The timing and the extent of the continued recovery in our sales volumes cannot be reasonably estimated at this time.

As such, the extent of the ultimate impact of the pandemic on the Company’s operational and financial performance will depend

on various developments, including the duration and spread of the outbreak, the impact on capital and financial markets, governmental

limitations on business operations generally, and its and their impact on potential customers, employees, vendors and distribution

partners, all of which cannot be reasonably predicted at this time.

2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Consolidation and Basis of Presentation

consolidated financial statements include the financial position and results of operations of OMNIQ Corp.

and its wholly owned

subsidiaries Quest Marketing, Inc., Quest Exchange Ltd., and HTS Image Processing, Inc., collectively referred to herein as

“we”

or “us”

“our”

or “our”

or the “Company.”

All significant intercompany accounts and transactions have been eliminated in

these consolidated financial statements.

Business combinations are included in the consolidated financial statements from their

respective dates of acquisition.

RECLASSIFICATIONS

AND COMPARABILITY

amounts in the financial statements of prior years have been reclassified to conform to the current year presentation for comparative

This had no effect on total assets or net income.

November 20, 2019, the Company implemented a one-for-20 reverse stock split of the Company’s common stock.

value of common stock and the number of authorized shares were not adjusted as a result of the reverse stock split.

and per share amounts in the financial statements and notes thereto have been retroactively adjusted for all periods presented

to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock

to additional paid-in capital.

As a result of the Reverse Split, proportionate adjustments have been made to the per share

exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options and warrants issued by the

Company and outstanding immediately prior to the Effective Time, which resulted in a proportionate decrease in the number of shares

of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock units

and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock

options and warrants.

In addition, the number of shares authorized for future grant under the Company’s equity incentive/compensation

plans immediately prior to the Effective Time was reduced proportionately.

preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States

of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at

the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially

different amounts could have been reported under different conditions, or if different assumptions had been used.

evaluates its estimates and assumptions on a regular basis.

The Company uses historical experience and various other assumptions

that are believed to be reasonable under the circumstances to form the basis for making judgments about carrying values of assets

and liabilities that are not readily apparent from other sources.

Actual results may materially differ from these estimates and

assumptions used in preparation of the consolidated financial statements.

Significant areas where estimates and management judgments

were used include calculation of stock based compensation, deferred tax assets/liabilities, valuation of intangible assets, allowance

for doubtful accounts receivable, and net realizable value of inventory.

VALUE OF FINANCIAL INSTRUMENTS

value is the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal

or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement

Applicable accounting guidance provides a hierarchy for inputs used in measuring fair value that prioritize the use of observable

inputs over the use of unobservable inputs, when such observable inputs are available.

The three levels of inputs that may be

used to measure fair value are as follows:

1 - Quoted prices in active markets for identical assets or liabilities.

2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in

markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all

significant inputs are observable or can be derived principally from, or corroborated with, observable market data.

3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions

and judgments made by the Company.

and liabilities are classified based on the lowest level of input that is significant to the fair value measurements.

reviews the fair value hierarchy classification on a quarterly basis.

Changes in the observable inputs may result in a reclassification

of assets and liabilities within the three levels of the hierarchy outlined above.

carrying amounts of certain financial instruments, such as cash equivalents, short term investments, accounts receivable, accounts

payable and accrued liabilities, approximate fair value due to their relatively short maturities.

AND CASH EQUIVALENTS

significant intercompany accounts and transactions have been eliminated in these consolidated financial statements.

Business combinations

are included in the consolidated financial statements from their respective dates of acquisition.

prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States

of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of

assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of

revenues and expenses during the reported period.

These assumptions and estimates could have a material effect on our consolidated

financial statements.

Actual results may differ materially from those estimates.

We review our estimates on an ongoing basis based

on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Cash Equivalents and Restricted Cash

consists of petty cash, checking, savings, and money market accounts.

4 unchanged sentences

Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.

Company has restricted cash on deposit with a federally insured bank in the amount of $533 thousand and $532 thousand at December

Company has restricted cash on deposit with a federally insured bank in the amount of $533 thousand at December

31, 2020 and 2019, respectively.

This cash is security and collateral for a corporate credit card agreement with a bank and for

deposit against a letter of credit issued for executive life insurance policies owned by the Company.

receivable are carried at their estimated collectible amounts.

The Company provides allowances for uncollectible accounts receivable

equal to the estimated collection losses that will be incurred in collection of all receivables.

Accounts receivable are periodically

evaluated for collectability based on past credit history with customers and their current financial condition.

The Company’s

management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period

the determination is made.

The Company generally requires no collateral to secure its ordinary accounts receivable.

Based on management’s

evaluation, accounts receivable has a balance in the allowance for doubtful accounts of $36 thousand and $33 thousand for the

years ended December 31, 2019 and 2018, respectively.

We manage credit risk associated with

our accounts receivables at the customer level.

Because the same customers typically generate the revenues that are accounted

for under both Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606) and Accounting

Standards Codification Topic 326, Credit Losses (Topic 326 )., the discussions below on credit risk and our allowances

for doubtful accounts address our total revenues from Topic 606 and Topic 326.

believe concentration of credit risk, with respect to our receivables, is limited because our customer base is comprised of a

number of geographically diverse customers.

We manage credit risk through credit approvals, credit limits and other monitoring

to Topic 326 for our accounts receivables, we maintain an allowance for doubtful accounts that reflects our estimate of our expected

credit losses.

Our allowance is estimated using a loss rate model based on delinquency.

The estimated loss rate is based on our

historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable

forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data.

We perform credit evaluations

of customers and establish credit limits based on reviews of our customers’

current credit information and payment histories.

We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures.

The actual rate of future credit losses, however, may not be similar to past experience.

Our estimate of doubtful accounts could

change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers.

Accordingly, we may be required to increase or decrease our allowance for doubtful accounts.

Based on management’s evaluation,

accounts receivable has a balance in the allowance for doubtful accounts of $28 thousand and $36 thousand for the years ended

December 31, 2020 and 2019, respectively.

Substantially

all inventory consists of raw materials and finished goods and are valued at the lower of cost or net realizable value;

net realizable value is considered to be estimated selling price in the ordinary course of business, less reasonably predictable

cost of completion, disposal and transportation.

all inventory consists of raw materials and finished goods and are valued at the lower of actual cost or net realizable

where net realizable value is considered to be estimated selling price in the ordinary course of business, less reasonably

predictable cost of completion, disposal and transportation.

and Equipment

Property and equipment are recorded

at cost and depreciated using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 15

Upon disposition of property and equipment, related gains and losses are recorded in the results of operations.

expense for the years ended December 31, 2019 and 2018 was $152 thousand and $57 thousand, respectively.

Expenditures for

major renewals and betterments that extend the useful lives of property and equipment are capitalized.

Expenditures for maintenance

and repairs are charged to expenses as incurred.

AND INTANGIBLE ASSETS

a result of acquisitions, the Company recorded goodwill and identifiable intangible assets as part of its allocation of the purchase

consideration.

is the excess of the purchase price paid over the fair value of the net assets of the acquired business.

Goodwill is tested for

impairment annually or whenever events indicate that the carrying amount might not be recoverable.

The qualitative

or quantitative assessments involve determining an estimate of the fair value of reporting units in order to evaluate whether

an impairment of the current carrying amount of goodwill exists.

A qualitative assessment evaluates whether it is more likely

than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill

impairment test.

The first step of a quantitative goodwill impairment test compares the fair value of the reporting unit to its

carrying amount including goodwill.

If the carrying amount of the reporting unit exceeds its fair value, an impairment loss may

be recognized.

The amount of impairment loss is determined by comparing the implied fair value of the reporting unit’s goodwill

with the carrying amount.

If the carrying amount exceeds the implied fair value then an impairment loss is recognized equal to

No impairment charges have been recorded as a result of the Company’s annual impairment assessments.

has adopted the provisions of ASU 2017-04—Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill

ASU 2017-04 requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative

to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill

balance of the reporting unit.

Thus, ASU 2017-04 permits an entity to record a goodwill impairment that is entirely or partly

due to a decline in the fair value of other assets that, under existing GAAP, would not be impaired or have a reduced carrying

Furthermore, the ASU removes “the requirements for any reporting unit with a zero or negative carrying amount to

perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.”

Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test.

the goodwill of reporting unit or entity with zero or negative carrying values will not be impaired, even when conditions underlying

the reporting unit/entity may indicate that goodwill is impaired.

goodwill and indefinite lived intangible assets, the Company completes what is referred to as the “Step 0”

which involves evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors,

and overall financial performance.

If our “Step 0”

analysis indicates it is more likely than not that the fair value

is less than the carrying amount, we would perform a quantitative two-step impairment test.

The quantitative analysis compares

the fair value of our reporting unit or indefinite-lived intangible assets to the carrying amounts, and an impairment loss is

recognized equivalent to the excess of the carrying amount over the fair value.

Fair value is determined based on discounted cash

flows, market multiples or appraised values, as appropriate.

Discounted cash flow analysis requires assumptions about the timing

and amount of future cash inflows and outflows, risk, the cost of capital, and terminal values.

Each of these factors can significantly

affect the value of the intangible asset.

The estimates of future cash flows, based on reasonable and supportable assumptions

and projections, require management’s judgment.

Any changes in key assumptions about the Company’s businesses and

their prospects, or changes in market conditions, could result in an impairment charge.

Some of the more significant estimates

and assumptions inherent in the intangible asset valuation process include:

the timing and amount of projected future cash flows;

the discount rate selected to measure the risks inherent in the future cash flows;

and the assessment of the asset’s life

cycle and the competitive trends impacting the asset, including consideration of any technical, legal or regulatory trends.

the year ended December 31, 2019 the Company determined that there were no indicators of impairment of goodwill.

assets with finite useful lives consist of trademarks, customer lists, and intellectual property rights and are amortized

on a straight-line basis over their estimated useful lives, which range from two to seven years.

The estimated useful lives associated

with finite-lived intangible assets are consistent with the estimated lives of the associated products and may be modified when

circumstances warrant.

Such assets are reviewed for impairment when events or circumstances indicate that the carrying value of

an asset may not be recoverable.

An impairment loss would be recognized when estimated undiscounted future cash flows expected

to result from the use of an asset and its eventual disposition are less than its carrying amount.

The amount of any impairment

is measured as the difference between the carrying amount and the fair value of the impaired asset.

There was no impairment recorded

for 2019 and 2018.

and equipment are recorded at cost and depreciated using both straight-line over the estimated useful lives.

Ordinary repair

and maintenance costs are included in sales, general and administrative (“SG&A”) expenses on our consolidated

statements of operations.

However, expenditures for additions or improvements that significantly extend the useful life of

the asset are capitalized in the period incurred.

At the time assets are sold or disposed of, the cost and accumulated

depreciation are removed from their respective accounts and the related gains or losses are reflected in the statements of

operations in gains from sales of property and equipment, net.

periodically evaluate the appropriateness of remaining depreciable lives assigned to property and equipment.

Leasehold improvements

are amortized using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is

Depreciation expense for the years ended December 31, 2020 and 2019 was $178 thousand and $151 thousand, respectively.

we assign the following estimated useful lives to these categories:

Value of Financial Instruments

value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date.

The FASB fair value measurement guidance established a fair value hierarchy

that prioritizes the inputs used to measure fair value.

The three broad levels of the fair value hierarchy are as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities

Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,

either directly or indirectly

Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions

Assets and liabilities are classified

based on the lowest level of input that is significant to the fair value measurements.

We review the fair value hierarchy classification

on a quarterly basis.

Changes in the observable inputs may result in a reclassification of assets and liabilities within the three

levels of the hierarchy outlined above.

The carrying amounts of certain financial

instruments, such as cash equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities,

approximate fair value due to their relatively short maturities.

and Intangibles

have made acquisitions in the past that resulted in the recognition of goodwill.

Goodwill is the excess of the consideration transferred

plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable

net assets acquired.

We evaluate goodwill for impairment annually or more frequently, if triggering events occur or other impairment

indicators arise which might impair recoverability.

of the goodwill impairment test requires judgment.

We performed a Step 1 quantitative assessment of goodwill impairment as of

December 31, 2020, our annual impairment test date.

We compared the carrying value inclusive of goodwill and definite-lived

intangible assets, to its fair value.

We estimated the fair value of these reporting units by weighting results from the income

approach and the market approach, as further described below.

Based on this quantitative test, we determined there was no impairment

as of the December 31, 2020.

purposes of performing the quantitative impairment test described above, we estimate the fair value by utilizing fair value techniques

consistent with the income approach and market approach.

When performing the income approach for each reporting unit, we use a

discounted cash flow analysis based on our internal projected results of operations, weighted average cost of capital (“WACC”)

and terminal value assumptions.

Our cash flow projections are based on five-year financial forecasts developed by management that

include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth.

The WACC is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise and

represents the expected cost of new capital likely to be used by market participants.

The WACC is used to discount our combined

future cash flows.

The inputs and variables used in determining the fair value of a reporting unit require management to make

certain assumptions regarding the impact of operating and macroeconomic changes, as well as estimates of future cash flows.

estimates regarding future cash flows are based on historical experience and projections of future operating performance, including

revenues, margins and operating expenses.

We also make certain forecasts about future economic conditions, interest rates and

other market data.

Many of the factors used in assessing fair value are outside the control of management, and these assumptions

and estimates may change in future periods.

Changes in assumptions or estimates could materially affect the estimate of a reporting

unit’s fair value, and therefore could affect the likelihood and amount of potential impairment.

Under the market approach,

we compare the reporting units to selected reasonably similar (or “guideline”) publicly-traded companies.

method, valuation multiples are:

(i) derived from the operating data of selected guideline companies;

(ii) evaluated and adjusted

based on the strengths and weaknesses of our reporting unit relative to the selected guideline companies;

and (iii) applied to

the operating data of our reporting unit to arrive at an indication of value.

The application of the market approach results in

an estimate of the price reasonably expected to be realized from a sale of the Company.

intangible assets are stated at cost, net of accumulated amortization.

The assets are being amortized on the straight-line method

over useful lives ranging from 3 to 11 years.

adopted ASU 2016-02, Leases (Topic 842):

effective January 1, 2019.

We determine whether an

arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract.

A contract contains

a lease if there is an identified asset and we have the right to control the asset for a period of time in exchange for consideration.

Lease arrangements can take several forms.

Some arrangements are clearly within the scope of lease accounting, such as a real

estate contract that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration.

However, the right to use an asset can also be conveyed through arrangements that are not leases in form, such as leases embedded

within service and supply contracts.

We analyze all arrangements with potential embedded leases to determine if an identified

asset is present, if substantive substitution rights are present, and if the arrangement provides the customer control of the

lease portfolio is substantially comprised of operating leases related to leases of real estate and improvements.

time, we may also lease various types of small equipment and vehicles.

lease right-of-use (“ROU”) assets represent our right to use an individual asset for the lease term and lease liabilities

represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized

at the commencement date based on the present value of lease payments over the lease term.

As most of our leases do not provide

the lessor’s implicit rate, we use our incremental borrowing rate (“IBR”) at the commencement date in determining

the present value of lease payments by utilizing a fully collateralized rate for a fully amortizing loan with the same term as

terms include options to extend the lease when it is reasonably certain those options will be exercised.

For leases with terms

greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term.

can include rental escalation clauses, renewal options and/or termination options that are factored into our determination of

lease payments when such renewal options and/or termination options are reasonably certain of exercise.

ROU asset is subject to the same impairment guidance as assets categorized as plant, property, and equipment.

As such, any impairment

loss on ROU assets is presented in the same manner as an impairment loss recognized on other long-lived assets.

lease modification is a change to the terms and conditions of a contract that change the scope or consideration of a lease.

example, a change to the terms and conditions to the contract that adds or terminates the right to use one or more underlying

assets, or extends or shortens the contractual lease term, is a modification.

Depending on facts and circumstances, a lease modification

may be accounted as either:

(1) the original lease plus the lease of a separate asset(s) or (2) a modified lease.

be remeasured if there are changes to the lease contract that do not give rise to a separate lease.

Accounting and Business Combinations

Company accounts for its business combinations using the purchase method of accounting which requires that intangible assets be

recognized apart from goodwill if they are contractual in nature or separately identifiable.

Acquisitions are measured on the

fair value of consideration exchanged and, if the consideration given is not cash, measurement is based on the fair value of the

consideration given or the fair value of the assets acquired, whichever is more reliably measurable.

The excess of cost of an

acquired entity over the fair value of identifiable acquired assets and liabilities assumed is allocated to goodwill.

account for our business combinations using the purchase method of accounting which requires that intangible assets be recognized

apart from goodwill if they are contractual in nature or separately identifiable.

Acquisitions are measured on the fair value

of consideration exchanged and, if the consideration given is not cash, measurement is based on the fair value of the consideration

given or the fair value of the assets acquired, whichever is more reliably measurable.

The excess of cost of an acquired entity

over the fair value of identifiable acquired assets and liabilities assumed is allocated to goodwill.

valuation and allocation processes rely on significant assumptions made by management.

2 unchanged sentences

Accordingly, the allocations are subject to revision

when the Company receives updated information, including appraisals and other analyses, which are completed within one year of

the acquisition.

Revisions to the fair values, which may be significant, are recorded when pending information is finalized, within

one year from the acquisition date.

Company is a primary distribution channel for a large group of vendors and suppliers, including original equipment manufacturers

(“OEMs”), software publishers and wholesale distributors.

Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified,

payment terms are established, the contract has commercial substance and collectability of consideration is probable.

evaluates the following indicators amongst others when determining whether it is acting as a principal in the transaction and

recording revenue on a gross basis:

(i) the Company is primarily responsible for fulfilling the promise to provide the specified

goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer

or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified

good or service.

If the terms of a transaction do not indicate the Company is acting as a principal in the transaction, then the

Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

Company recognizes revenue once control has passed to the customer.

The following indicators are evaluated in determining when

control has passed to the customer:

(i) the Company has a right to payment for the product or service, (ii) the customer has legal

title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer

has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product.

The Company’s

products can be delivered to customers in a variety of ways, including (i) as physical product shipped from the Company’s

warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses.

Company’s shipping terms typically allow for the Company to recognize revenue when the product reaches the customer’s

Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers without

having to physically hold the inventory at its warehouses.

The Company is the principal in the transaction and recognizes revenue

for drop-shipment arrangements on a gross basis.

when we receive updated information, including appraisals and other analyses, which are completed within one year of the acquisition.

Revisions to the fair values, which may be significant, are recorded when pending information is finalized, within one year from

the acquisition date.

entering into contracts with our customers, we review follow the five steps outline in Accounting Standards Codification Topic

606, Revenue from Contracts with Customers (Topic 606) :

the contract with our customer.

the performance obligations in the contract.

the transaction price.

the transaction price to the performance obligations.

the satisfaction of the performance obligations,

account for contracts, with our customers, when we have approval and commitment from both parties, the rights of the parties are

identified, payment terms are established, the contract has commercial substance and collectability of consideration is probable.

evaluate, in accordance with Topic 606, whether we meet the criteria to be a principal or an agent and record the revenue on a

gross or net basis.

We are considered a principal if we obtain control of any one of the following:

good or another asset from another party that we then transfer to our customer.

right to a service to be performed by another party, which gives the us the ability to direct that party to provide the service

to the customer on our behalf, and

good or service from another party that we then combine with other goods or services in providing the specified good or service

to our customer.

have certain relationships with manufacturers and suppliers to sell us products or provide services.

Our contracts may transfer

to our customer a right to a future service or product to be provided by our manufacturer or supplier.

When a specified good or

service is a right to a good or service is provided by a manufacturer or supplier, we evaluate whether we control the right to

the goods or services before that right is transferred to the customer rather than whether we control the underlying goods or

that we control the specified good or service before it is transferred to the customer (and we are therefore a principal) include,

but are not limited to, the following:

are responsible for fulfilling the promise to provide the specified good or service.

This typically includes responsibility

for the acceptability of the specified good or service.

If we are primarily responsible for fulfilling the promise to provide

the specified good or service, this may indicate that the other party involved in providing the specified good or service

is acting on our behalf.

Often, we provide value added services (combining hardware, integrating hardware to software, etc.)

to the products and services purchased from our manufacturers and suppliers.

have inventory risk before the specified good or service has been transferred to a customer.

Our purchases of products or

services from our manufactures and suppliers is evidenced by our issuing a binding purchase order contract with the negotiated

terms including specifications, pricing, delivery among other things.

Our obligation for purchased products and services is

mutually exclusive of our customers’

performance (failure to take acceptance, make payment, etc.

have sole discretion in establishing our price for the specified good or service.

Establishing the price our customer pays

for a specified good or service may indicate we have the ability to direct the use of that good or service and obtain substantially

all of the remaining benefits.

We control and set the pricing for the product or services to be provided to our customers.

the terms of a transaction do not indicate we are acting as a principal in the transaction, we are then considered acting as an

agent and the associated revenues would be recognized on a net basis.

principal, when (or as) we satisfy a performance obligation, we recognize revenue in the gross amount of consideration which we

expect to be entitled in exchange for the specified good or service transferred.

We are an agent if our performance obligation

is to arrange for the provision of the specified good or service by another party.

As an agent, we do not control the specified

good or service provided by another party before that good or service is transferred to our customer.

As an agent, when (or as)

we satisfy a performance obligation, we recognize revenue in the amount of any fee or commission which we expect to be entitled

in exchange for arranging for the specified goods or services to be provided by another party to our customer.

Topic 606, we recognize revenue (on either a gross or net basis previously discussed) only when we satisfy a performance obligation

by transferring a promised good or service to our customer.

A good or service is considered to be transferred when the customer

obtains control.

The standard defines control as an entity’s ability to direct the use of, and obtain substantially all

of the remaining benefits from, an asset.

We recognize revenue (either gross or net) once control has passed to the customer.

The following indicators are evaluated in determining when control has passed to the customer:

have a right to payment for the product or service,

customer has legal title to the product,

have transferred physical possession of the product to the customer,

customer has the risk and rewards of ownership of the product, and

customer has accepted the product.

Recognition for Hardware.

from sales of hardware products are recognized on a gross basis as the Company is acting as a principal in these transactions,

with the selling price to the customer recorded as Net sales and the acquisition cost of the product recorded as Cost of sales.

The Company recognizes revenue from these transactions when control has passed to the customer, which is usually upon delivery

of the product to the customer.

Company’s vendor partners warrant most of the products the Company sells.

These manufacturer warranties are assurance-type

warranties and are not considered separate performance obligations.

The warranties are not sold separately and only provide assurance

that products will conform to the manufacturer’s specifications.

In some transactions, a third-party will provide the customer

with an extended warranty.

These extended warranties are sold separately and provide the customer with a service in addition to

assurance that the product will function as expected.

The Company considers these warranties to be separate performance obligations

from the underlying product.

For warranties, the Company is arranging for those services to be provided by the third-party and

therefore is acting as an agent in the transaction and records revenue on a net basis at the point of sale.

Revenues from sales of hardware products are recognized on a gross basis as we are acting as a principal

in these transactions, with the selling price to the customer recorded as sales and the acquisition cost of the product recorded

as cost of sales.

We recognize revenue from these transactions when control has passed to the customer.

Manufacturers

and suppliers, from whom we purchase hardware, often provide their warranties only providing assurance the products and services

will conform to their specifications.

These assurance type warranties are not sold separately and are not considered separate

performance obligations.

In some transactions, a third-party will provide the customer with an extended warranty.

These extended

warranties are sold separately and provide the customer with a service in addition to assurance that the product will function

We consider these warranties to be separate performance obligations from the underlying product.

For warranties,

where we are arranging those services be provided by a third-party, we are acting as an agent in the transaction and records revenue

on a net basis at the point of sale.

Recognition for Software.

from most software license sales are recognized as a single performance obligation on a gross basis as the Company is acting as

a principal in these transactions at the point the software license is delivered to the customer.

Generally, software licenses

are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no

additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is

The Company evaluates whether the software assurance is a separate performance obligation by assessing if the third-party

Sales of software licenses are generally considered a single performance obligation.

considered to be the principal, we recognize revenues on a gross basis at the point the software is delivered to and accepted

by our customer.

Generally, software licenses are sold with accompanying third-party delivered software assurance, which is a

product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during

the period that the software assurance is in effect.

explained above, we evaluate whether the software assurance is a separate performance obligation by assessing if the third-party

delivered software assurance is critical or essential to the core functionality of the software itself.

This involves considering:

if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe

a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to

the software (such as updates that maintain the original functionality), and if the customer chooses to not delay or always install

If the Company determines that the accompanying third-party delivered software assurance is critical or essential to

the core functionality of the software license, the software license and the accompanying third-party delivered software assurance

are recognized as a single performance obligation.

In some transactions, a third-party will provide the customer with an extended

These extended warranties are sold separately and provide the customer with a service in addition to assurance that

the product will function as expected.

The Company considers these warranties to be separate performance obligations from the

underlying product.

For warranties, the Company is arranging for those services to be provided by the third-party and therefore

is acting as an agent in the transaction and records revenue on a net basis at the point of sale.

the software provides its original intended functionality to the customer without the updates,

the customer would ascribe a higher value to the upgrades versus the up-front deliverable,

the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality),

the customer chooses to not delay or always install upgrades.

we determine the accompanying third-party delivered software assurance is critical or essential to the core functionality of the

software license, the software license and the accompanying third-party delivered software assurance are recognized as a single

performance obligation.

some transactions, a third-party will provide the customer with an extended warranty.

These extended warranties are sold separately

and provide the customer with a service in addition to assurance that the product will function as expected.

We consider these

warranties to be separate performance obligations from the underlying product.

For warranties, where we are arranging those services

be provided by a third-party, we are acting as an agent in the transaction and records revenue on a net basis at the point of

Recognition for Services.

Company provides professional services, which include project managers and consultants recommending, designing and implementing

IT solutions.

Revenue from professional services is recognized either on a time and materials basis or proportionally as costs

are incurred for fixed fee project work.

Revenue is recognized on a gross basis each month as work is performed and the Company

We provide professional services, which include project managers and consultants recommending, designing

and implementing IT solutions.

Revenue from professional services is recognized either on a time and materials basis or proportionally,

as costs are incurred for fixed fee project work.

Revenue is recognized on a gross basis each month as work is performed and we

transfers those services.

from the sale of professional and support services, provided by the Company, are recognized over the period the service is provided.

As the customer receives the benefit of the service each month, the Company recognizes the respective revenue on a gross basis

as the Company is acting as a principal in the transaction.

Additionally, the Company’s managed services team provides project

support to customers on a fixed fee basis.

The Company is acting as the principal in the transaction and recognizes revenue on

a gross basis based on the total number of hours incurred for the period over the total expected hours for the project.

expected hours to complete the project is updated for each period and best represents the transfer of control of the service to

the customer.

Company records both the freight billed to its customers and the related freight costs as Cost of sales when the underlying product

revenue is recognized.

For freight not billed to its customers, the Company records the freight costs as Cost of sales.

The Company’s

typical shipping terms result in shipping being performed before the customer obtains control of the product.

The Company considers

shipping to be a fulfillment activity and not a separate performance obligation.

Company generally expenses marketing and advertising costs as incurred.

During 2019 and 2018, the Company spent $224 thousand

and $148 thousand, respectively, on marketing, trade show and store front expense and advertising, net of co-operative rebates.

Company received rebates on advertising from co-operative advertising agreements with several vendors and suppliers.

These rebates

have been recorded as a reduction to the related advertising and marketing expense.

Company recognizes stock-based compensation in accordance with ASC Topic 718 “Stock Compensation”, which requires

the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including

employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.

non-employee stock-based compensation, we have adopted ASC Topic 505 “Equity-Based Payments to Non-Employees”, which

requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or

options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with ASC Topic

December 23, 2015, the Company’s Board of Directors approved the Quest Solution, Inc.

Employee Stock Purchase Plan (the

“ESPP”), under which 95,000 shares of common stock were reserved for the purchase by the Company’s employees.

Under the plan, employees may purchase a limited number of shares of the Company’s common stock at a 15% discount from the

closing market prices measured on the last days of each month.

March 6, 2018, the Board approved the Company’s 2018 Equity Incentive Plan and later amended it on October 31, 2018.

January 23, 2019, the Company’s shareholders adopted and ratified the 2018 Equity Incentive Plan.

The total number of shares

of Common Stock authorized for issuance under the 2018 Plan is 800,000.

from the sale of professional and support services, provided by us, are recognized over the period the service is provided.

the customer receives the benefit of the service each month, we recognize the respective revenue on a gross basis as we are acting

as a principal in the transaction.

Additionally, we manage services team provides project support to customers that are billed

on a fixed fee basis.

We are acting as the principal in the transaction and recognize revenue on a gross basis based on the total

number of hours incurred for the period over the total expected hours for the project.

Total expected hours to complete the project

is updated for each period and best represents the transfer of control of the service to the customer.

We record both the freight billed to its customers and the related freight costs as cost of sales when the underlying

product revenue is recognized.

For freight not billed to its customers, we record the freight costs as cost of sales.

considers shipping to be a fulfillment activity and not a separate performance obligation.

November 20, 2019, we implemented a one-for-20 reverse stock split of the Company’s common stock.

The par value of common

stock and the number of authorized shares were not adjusted as a result of the reverse stock split.

All share and per share amounts

in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this

reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in

As a result of the Reverse Split, proportionate adjustments have been made to the per share exercise price and/or the

number of shares issuable upon the exercise or vesting of all stock options and warrants issued by the Company and outstanding

immediately prior to the Effective Time, which resulted in a proportionate decrease in the number of shares of the Company’s

common stock reserved for issuance upon exercise or vesting of such stock options, Preferred stock, restricted stock units

and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock

options and warrants.

In addition, the number of shares authorized for future grant under the Company’s equity incentive/compensation

plans immediately prior to the Effective Time was reduced proportionately.

periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services

and for financing costs.

We account for stock option and warrant grants issued and vesting to employees based on the authoritative

guidance provided by Financial Accounting Standards Board (the “FASB”) where the value of the award is measured on

the date of grant and recognized as compensation expense on the straight-line basis over the vesting period.

record stock-based compensation expense according to the provisions of ASC Topic 718, Compensation –

Stock Compensation.

ASC Topic 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in

the financial statements based on their fair values.

Under the provisions of ASC Topic 718, the Company determines the appropriate

fair value model to be used for valuing share-based payments and the amortization method for compensation cost.

fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, Compensation –

Compensation.

The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic

volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of

future exercise patterns.

The dividend yield assumption is based on historical and anticipated dividend payouts.

The risk-free

interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant.

Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for

those awards that are expected to vest.

Compensation expense is recorded for all stock options expected to vest based on the amortization

of the fair value at the date of grant on a straightline basis primarily over the vesting period of the options.

August 2020, the Board of Directors approved our 2020 Equity Incentive Plan and later amended it.

In September 2020, our

shareholders adopted and ratified the 2020 Equity Incentive Plan.

The total number of shares of Common Stock authorized for issuance

under the 2020 Plan is 1,000,000.

instruments issued to parties other than employees for acquiring goods or services

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of the option is based on the United States Treasury yield curve in effect at the time of grant.

Company expenses marketing and advertising costs as incurred.

During 2020 and 2019, the Company spent $283 thousand

and $224 thousand, respectively, on marketing, trade show and store front expense and advertising, net of co-operative rebates.

Company received rebates on advertising from co-operative advertising agreements with several vendors and suppliers.

These rebates

have been recorded as a reduction to the related advertising and marketing expense.

Currency Translation

consolidated financial statements of the Company are presented in U.S.

consolidated financial statements are presented in U.S.

The functional currency for the Company is U.S.

Transactions in currencies other than the functional currency are recorded using the appropriate exchange rate at the

time of the transaction.

All of the Company’s continuing operations are conducted in U.S.

dollars except its subsidiary

located in Israel.

The records of the Israeli operation were maintained in the local currency and re-measured to the

functional currency as follows:

monetary assets and liabilities are converted using the balance sheet period-end date exchange

rate, while the non-monetary assets and liabilities are converted using the historical exchange rate.

Expenses and income items

are converted using the weighted average exchange rates for the reporting period.

Foreign transaction gains and losses are reported

on the consolidated statement of operations and were included in the amount of loss from discontinued operations.

Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of

deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying

amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards.

Deferred tax assets and

liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences

are expected to be recovered or settled.

in currencies other than the functional currency are recorded using the appropriate exchange rate at the time of the transaction.

All of our continuing operations are conducted in U.S.

dollars except its subsidiary located in Israel.

The records of the Israeli

operation were maintained in the local currency and re-measured to the functional currency as follows:

monetary assets and liabilities

are converted using the balance sheet period-end date exchange rate, while the non-monetary assets and liabilities are converted

using the historical exchange rate.

Expenses and income items are converted using the weighted average exchange rates for the

reporting period.

Foreign transaction gains and losses are reported on the consolidated statement of operations and were included

in the amount of loss from comprehensive income.

account for our income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred

tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts

of existing assets and liabilities and their respective tax bases and tax credit carry forwards.

Deferred tax assets and liabilities

are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are

expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized

4 unchanged sentences

and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.

Company also follows the guidance related to accounting for income tax uncertainties.

In accounting for uncertainty in income

taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority

would more likely than not sustain the position following an audit.

For tax positions meeting the more likely than not threshold,

the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized

also follow the guidance related to accounting for income tax uncertainties.

In accounting for uncertainty in income taxes, the

Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would

more likely than not sustain the position following an audit.

For tax positions meeting the more likely than not threshold, the

amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized

upon ultimate settlement with the relevant tax authority.

Company’s income is subject to taxation in both the U.S.

income is subject to taxation in both the U.S.

and a foreign jurisdiction, Israel.

Significant judgment is required

in evaluating the Company’s tax positions and determining its provision for income taxes.

The Company establishes reserves

for income tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due.

reserves for tax contingencies are established when the Company believes that positions do not meet the more-likely-than-not recognition

The Company adjusts uncertain tax liabilities in light of changing facts and circumstances, such as the outcome of

a tax audit or lapse of a statute of limitations.

The provision for income taxes includes the impact of uncertain tax liabilities

and changes in liabilities that are considered appropriate.

Significant judgment is required in evaluating

the Company’s tax positions and determining its provision for income taxes.

The Company establishes reserves for income

tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due.

These reserves

for tax contingencies are established when the we believe positions do not meet the more-likely-than-not recognition threshold.

We adjust uncertain tax liabilities in light of changing facts and circumstances, such as the outcome of a tax audit or lapse

of a statute of limitations.

The provision for income taxes includes the impact of uncertain tax liabilities and changes in liabilities

that are considered appropriate.

Comprehensive

4 unchanged sentences

by owners and distributions to owners.

The Company’s other comprehensive income (loss) is composed of foreign currency translation

Our other comprehensive income (loss) is composed of foreign currency translation adjustments.

Loss Per Common Share

See NOTE 15 regarding our 1-for-20

reverse stock split.

Share related amounts have been retroactively adjusted in this report to reflect this reverse stock-split

for all periods presented.

NOTE 14 regarding our 1-for-20 reverse stock split.

Share related amounts have been retroactively adjusted in this report

to reflect this reverse stock-split for all periods presented.

loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”.

5 unchanged sentences

The weighted-average number of common

shares outstanding for computing basic EPS for the years ended December 31, 2019 and 2018 were 3,889,478 and 2,481,530, respectively.

Diluted net loss per share of common stock is the same as basic net loss per share of common stock because the effects of potentially

dilutive securities are antidilutive.

shares outstanding for computing basic EPS for the years ended December 31, 2020 and December 31, 2019 were 4,322,303 and 3,889,478,

respectively.

Diluted net loss per share of common stock is the same as basic net loss per share of common stock because the effects

of potentially dilutive securities are antidilutive.

following table sets forth the potentially dilutive securities excluded from the computation of diluted net loss per share because

such securities have an anti-dilutive impact due to losses reported:

to purchase common stock

Convertible preferred

Warrants to purchase

stock subject to repurchase

shares excluded from diluted net loss per share

Options to purchase common stock

Convertible preferred stock

Warrants to purchase common stock

Potential shares excluded from diluted net loss per share

Reclassifications

and Comparability

amounts in the financial statements of prior years have been reclassified to conform to the current year presentation for comparative

This had no effect on total assets or net income.

Accounting Pronouncements

Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13,

Fair Value Measurement (Topic 820), –

Disclosure Framework –

Changes to the Disclosure Requirements for Fair Value

Measurement , which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with

the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements.

This guidance is effective

for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted

upon issuance of the update.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated

Financial Statements.

Recently Adopted Accounting Pronouncements

July 2018, the FASB issued ASU 2018-10, Leases (Topic 842) .

This guidance requires an entity to recognize lease liabilities

and a right-of-use asset for all leases on the balance sheet and to disclose key information about the entity’s leasing

arrangements.

ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods

within that reporting period, with earlier adoption permitted.

In July 2018, the FASB approved an amendment to the new guidance

that allows companies the option of using the effective date of the new standard as the initial application (at the beginning

of the period in which it is adopted, rather than at the beginning of the earliest comparative period) and to recognize the effects

of applying the new ASU as a cumulative effect adjustment to the opening balance sheet or retained earnings.

Based on the effective

dates, the Company has adopted the new guidance at the beginning of the first quarter of fiscal 2019 using the new transition

election to not restate comparative periods.

The Company has elected the package of practical expedients upon adoption,

which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification,

lease classification, and initial direct costs.

In addition, the Company has elected not to separate lease and non-lease

components for all real estate leases and did not elect the hindsight practical expedient.

Lastly, the Company elected

a short-term lease exception policy, permitting it to exclude the recognition requirements of this standard from leases with

initial terms of 12 months or less.

Upon adoption, the Company recognized right-of-use assets of approximately $235

thousand and operating lease liabilities of approximately $235 thousand on its consolidated balance sheet, with no

significant change to its consolidated statements of operations or cash flows.

June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based

Payment Accounting (“ASU 2018-07”).

ASU 2018-07 simplifies several aspects of the accounting for nonemployee share-based

payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based

payment transactions for acquiring goods and services from nonemployees.

ASU 2018-07 is effective for public business entities

for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.

The Company adopted ASU

2018-07 on January 1, 2019 and the adoption of this standard is not expected to have a material impact on the Company’s

consolidated financial statements.

August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), –

Disclosure Framework –

to the Disclosure Requirements for Fair Value Measurement , which makes a number of changes meant to add, modify or remove

certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3

fair value measurements.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning

after December 15, 2019.

Early adoption is permitted upon issuance of the update.

The Company does not expect the adoption of

this guidance to have a material impact on its consolidated Financial Statements.

November 2018, the FASB issued ASU No.

2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit

Losses.”

ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit

losses standard, but rather, should be accounted for in accordance with the leases standard.

In general, the amendments in this

standard are effective for public business entities that meet the definition of a SEC filer for fiscal years beginning after December

15, 2019, and interim periods within those fiscal years.

The Company is currently evaluating the timing and impact of adoption

on the Company’s consolidated financial statements.

March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting

This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance

on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Reform Act) pursuant to Staff Accounting Bulletin No.

118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment

This standard is effective upon issuance.

As described in the footnotes to the Annual Report on Form 10-K, the Company’s

accounting for the tax effects of enactment of the Tax Reform Act is being assessed.

October 5, 2018 (“Closing Date”), the Company entered into the HTS Purchase Agreement with Walefar and Campbeltown,

(Walefar and Campbeltown are collectively referred to as the “Sellers”).

Pursuant to the HTS Purchase Agreement, the

Company purchased 100% of the capital stock of HTS Image Processing, Inc., and HTS’s wholly owned subsidiaries HTS USA,

and Teamtronics Ltd., from the Sellers.

As consideration, the Company (i) issued to the Sellers 1,122,648 shares (“Shares

Issued”) of the Company’s common stock, having a value of $5.3 million based on the average closing price of the Company’s

common stock for the twenty days preceding the Closing Date, (ii) cash in the amount of $300 thousand, and (iii) a 12 month convertible

promissory note with a principal amount of $700 thousand and an interest rate of six percent (6%) per year.

The note also provides

the Sellers the right to convert all or any portion of the then outstanding and unpaid principal amount and interest into fully

paid and non-assessable shares of the Company’s common stock at a conversion price of $4.72.

The HTS Purchase Agreement

constitutes a “related party transaction”

because of Company director Shai Lustgarten’s position as Chief Executive

Officer of HTS and stock ownership in HTS.

Additionally, Campbeltown is a “related party”

because Carlos Jaime Nissenson,

the beneficial owner of Campbeltown, is a consultant to the Company, a principal stockholder of the Company, and father of Company

CFO and director Neev Nissenson.

Carlos Jaime Nissenson was also a stockholder and director of HTS.

The aggregate consideration (“Total

Consideration) to be paid by the Company was an amount of shares of the Company’s common stock (the “Share Consideration”),

having a preliminary value of $7.0 million based on the average closing price of the common stock for the 20 days’

the closing of the Transaction (the “Per Share Value”), and $300 thousand in cash and a convertible promissory note

in the amount of $700 thousand (the “Cash Consideration”).

The Share Consideration and this Cash Consideration is

collectively referred to as the (“Consideration”).

The Share Consideration was to be adjusted by the net working capital

plus $20 thousand for audit fees and reduced by the amount of money owed by HTS to banks and other financial institutions.

On the Closing Date, the estimated Share Consideration was approximately $5.3 million.

HTS Purchase Agreement contained a provision where by HTS and Sellers agree to indemnify, defend and hold harmless the Company

against any and all claims, demands, losses, costs, expenses, obligations, liabilities and damages, including interest, penalties

and reasonable attorney’s fees and costs that arise within 12 months of the date of this HTS Purchase Agreement (“Covered

Losses”), incurred by the Buyer or any of its affiliates arising, resulting from, or relating to any and all liabilities

of HTS that have not been disclosed in the HTS Financial Statements, any misrepresentation of a material fact or omission to disclose

a material fact made by HTS or the Sellers in the HTS Purchase Agreement.

the HTS Purchase Agreement provided that HTS shall have a gross profit of $1.1 million for the fiscal year ended December 31,

2017 and $1.7 million for the six months ended June 30, 2018.

“Gross Contribution”

shall be defined as revenue minus

cost of material.

Furthermore, the Gross Contribution Adjustment provided that in the event that HTS’

Gross Contribution

is less than 85% of the figure set out above, any deficiency in excess of 15% (the “Net Deficiency”) shall result

in the forfeiture of a portion of the Share Consideration, with a value equal to the Net Deficiency.

HTS was required to deliver to the Company audited financial statements as of December 31, 2017 and for the year then ended (“HTS

Audited Financial Statements’) and reviewed financial statements as of September 30, 2018 and for the nine months then ended

(“HTS Reviewed Financial Statements”).

on the three indemnification clauses, above, the Sellers shall deposit 20%, or 224,530 shares, of the Share Consideration in escrow

with the Buyer’s counsel (the “Covered Loss Shares”) for the purposes of Covered Losses or the Net Deficiency.

In the event the Company makes a valid claim pursuant to the Covered Losses or the Net Deficiency, the dollar value of such claim

shall be satisfied by cancelation of an amount of the Escrowed Shares with an equal value to the Losses or Net Deficiency.

purposes of any adjustment, the Shares shall be valued at the Per Share Value.

The Covered Loss Shares shall be the maximum indemnification

reimbursement.

In addition, the Buyers shall deposit an additional 20%, or 224,530, of the Share Consideration, which shall not

be released until the HTS Audited Financial Statements and the HTS Reviewed Financial Statements are delivered to the Company

(“Audit Shares”) (collectively “Indemnification Shares”).

to the Acquisition Date, the amount for the working capital and money owned by HTS to banks and other financial institutions provided

by the Sellers was adjusted.

Upon the finalization of the assets and liabilities acquired as of October 1, 2018, the Share Consideration

was adjusted to $2.7 million, or 568,415 shares.

The Total Consideration was adjusted by $2.6 million, or 554,233

shares (“Adjusted Shares”).

The Adjusted Shares were recorded as of the Acquisition Date at the Acquisition Date fair

value of the Company’s common stock.

Since the maximum amount of the Covered Loss shares is 224,530, the Company and the

Sellers amended, the Agreement, on May 29, 2019 with an effective date of the Acquisition Date, to provide for the cancelation

of the adjusted Shares.

On December 24, 2018, the Company received the HTS Audited Financial Statements.

The HTS Reviewed Financial Statements were not

As part of the Amendment, the Company waived the requirement for the HTS Reviewed Financial Statements.

The Audit shares

have been included in the purchase price at the Acquisition Date fair value of the Company’s common stock.

Calculation of the purchase price:

value of stock at closing

Cash at closing

promissory note

Purchase price

following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed:

Accounts receivable, net

Prepaid expenses

Accounts payable

Related party payable

Notes payable

Notes payable- related parties

Foreign currency adjustment

Net assets acquired

transaction was accounted for using the acquisition method.

Accordingly, goodwill has been measured as the excess of the total

consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed including the related deferred

tax liability.

assets consisted of the following:

In thousands, except years

Market related intangibles

Customer relationships

estimated fair values for the market related intangibles and patents were determined by using the relief-from-royalty or excess

earnings methods.

The estimated fair value for the customer relationships and software were determined using the multi-period

excess earnings method and the cost approach, respectively.

of the intangible assets will be amortized on a straight-line basis over their estimated useful lives.

May 29, 2019, the Company, Campbeltown and Walefar entered into an Amendment to the HTS Purchase Agreement (the “Amendment”),

which provided for an adjustment to the number of shares of common stock issued to Walefar and Campbeltown in the acquisition

Pursuant to the Amendment, Campbeltown and Walefar agreed to each return for cancelation 277,116 shares of common stock.

This Amendment reduced the amount of shares issued in the acquisition to 568,415 shares from 1,122,648 shares and the amount of

share consideration to approximately $2.3 million from approximately $5.3 million .

This adjustment was made as a result of a

correction in the calculation of working capital and other share give back provisions of the HTS Purchase Agreement.

This Amendment

also reduces the Company’s issued and outstanding common stock to 3,850,421 from 4,404,653 as of May 29, 2019.

forma (Unaudited)

following unaudited pro forma information presents the combined results of operations as if the acquisitions had been completed

on January 1, 2018.

The unaudited pro forma results include amortization associated with preliminary estimates for the acquired

intangible assets on these unaudited pro forma adjustments.

unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies, or the effect of the incremental

costs incurred in integrating the two companies.

Accordingly, these unaudited pro forma results are presented for informational

purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been

if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations:

the year ended December 31, 2018

Net income (loss)

the year ended December 31, 2018, the proforma adjustments of $314 thousand is for the amortization expense for the nine months

ended September 30, 2018 associated with the fair value of the intangible assets acquired and the $184 thousand is to remove the

amortization for the nine months ended September 30, 2018 for the intangible assets that were revalued.

The amortization expense

for the three months ended December 31, 2018 is included in the Quest results of operations.

Pronouncements

Not Yet Adopted

December 2019, the FASB issued Accounting Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740):

the Accounting for Income Taxes (“ASU 2019-12”).

The guidance removes the following exceptions:

1) exception to the

incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from

other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign

subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign

subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating

income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

Additionally, the guidance

simplifies the accounting for income taxes by:

1) requiring that an entity recognize a franchise tax (or similar tax) that is

partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2)

requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination

in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that

an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not

subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for

a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the

effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes

the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments

in qualified affordable housing projects accounted for using the equity method.

ASU 2019-12 became effective on January 1, 2021

and is not expected to have a material impact on our consolidated financial statements.

March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate

Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited time to ease the potential

burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London

Interbank Offered Rate (“LIBOR”) on financial reporting.

The guidance provides optional expedients and exceptions

for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria

The amendments are elective and are effective upon issuance for all entities through December 31, 2022.

The amendments

of this ASU should be applied on a prospective basis.

We intend to continue to monitor the developments with respect to the planned

phase-out out of LIBOR after 2021 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal

impact on our financial condition.

However, we can provide no assurances regarding the impact of the discontinuation of LIBOR

as there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR.

Our exposure related to the expected cessation of LIBOR is limited to the interest expense we incur on balances outstanding under

our Credit Facility.

The potential impact from the cessation of LIBOR as a reference rate, as well as the applicability of ASU

2020-04, is not currently estimable.

Adopted Accounting Pronouncements

January 1, 2020, we adopted Accounting Standards Codification Topic 326, Credit Losses (Topic 326).

This standard establishes

an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather

than incurred losses.

Under the new guidance, we recognize an allowance for our estimate of expected credit losses over the entire

contractual term of our receivables from the date of initial recognition of the financial instrument.

Measurement of expected

credit losses are based on relevant forecasts that affect collectability.

Topic 326 applies to trade receivables from certain

revenue transactions including receivables from equipment sales, parts and service sales.

Under Accounting Standard Codification

Topic 606 (Revenue from Contracts with Customers), revenue is recognized when, among other criteria, it is probable that the

entity will collect the consideration to which it is entitled for goods or services transferred to a customer.

At the point that

these trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses over their

contractual life are recorded at inception based on historical information, current conditions, and reasonable and supportable

The adoption of Topic 326 did not have a material impact on our consolidated financial statements and related disclosures

or our existing internal controls because accounts receivable are of short duration and there is not a material difference between

incurred losses and expected losses.

January 1, 2020, we adopted ASU No.

2018-13, Fair Value Measurement - Disclosure Framework.

ASU 2018-13 modifies the disclosure

requirements for fair value measurements.

Entities are no longer required to disclose the amount of and reasons for transfers

between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted

average used to develop significant unobservable inputs for Level 3 fair value measurements.

The adoption of ASU 2018-13 did not

have a material impact on our consolidated financial statements and footnotes.

GOING CONCERN

accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern.

As of December

31, 2020, we had a working capital deficit of $25.3 million and an accumulated deficit of $56.7 million.

and others raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s continuation

as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis.

Management’s

plan to eliminate the going concern situation includes, but is not limited to, the following:

continuation of improving cash flow by maintaining moderate cost reductions (subsequent to aggressive cost reduction actions implemented

in previous years);

the accounts receivable factoring line of credit;

lower interest rates on outstanding debt;

issuances of additional common stock;

creation of additional sales and profits across its product lines, and the obtaining of sufficient financing to restructure

current debt in a manner more in line with the Company’s improving cash flow and cost reduction successes;

In our portfolio of products, we have a computer

vision technology that is based on AI and machine learning concepts.

These solutions have a higher gross profit that will

provide an increase in cashflow on a consolidated basis going forward.

The Company has an operating facility with the

ability for light manufacturing and assembling components, which helps reduce the cost of goods and increase profit margins;

April 2019, the Company raised approximately $5.0 million in gross proceeds from the sale of 833,333 shares of the Company’s

common stock.

BUSINESS ACQUISITION

February 2020, (the “Closing Date”), we entered into an Asset Purchase Agreement (the “Eyepax Agreement”),

with Eyepax IT Consulting, LLC (the “Seller”);

whereby, we acquired Seller’s accounts receivable and the license,

ownership rights and source code of the parking Enforcement and Revenue Control System.

The Company also assumed the Seller’s

accounts payable liabilities.

Pursuant to the terms of the Eyepax Agreement, the purchase price paid was to be paid as follows:

was paid on the Closing Date, less $5,000 previously paid as an advance payment, accordingly the remaining balance paid in

cash on Closing Date was $95,000.

per month for three months to be paid on or before the last business day of the month beginning with the first month after

the Closing Date, and a fourth payment of $20,000 until a total of $95,000 has been made.

on the first month after Closing Date, $5,000 per month to be paid in ten (10) monthly installments.

shares of the Company’s common stock in the name of the Seller, were issued during 45 days from Closing Date at $5.50

per common share.

options to purchase 20,000 shares of the Company’s common stock at an exercise price of $5.00 per share.

shares vest in equal quarterly periods, expiring in February 2023.

purchase price was measured at fair value on the Closing Date as follows (in thousands):

Cash payments to Seller

Subscribed common stock

Stock purchase options

assets acquired and liabilities assumed have been recognized at the Closing date and were measured at fair value as follows (in

Accounts receivable

Software (intangible)

Liabilities assumed

Net assets acquired at fair value

Total purchase price

Goodwill recognized

estimated the fair value the stock purchase option using the Black-Scholes option valuation model which incorporates assumptions

as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield.

In valuing these options,

the Company assumed a cumulative stock volatility of 269.42%, 36 months expected life, and a risk-free interest rate of 1.160%

and dividend yield of 0%.

ACCOUNTS RECEIVABLE

receivable consisted of the following as of December 31:

Trade Accounts Receivable

Less Allowance

for doubtful accounts

Total Accounts

Receivable (net)

the years ended December 31, 2019 and 2018, one customer accounted for 12.3% and 17.0%, respectively, of the Company’s revenues.

receivable at December 31, 2019 and 2018 are made up of trade receivables due from customers in the ordinary course of business.

Two customers together represented 20.9% of the balance of accounts receivable at December 31, 2019 and two customers made up

23.7% of the accounts receivable balance at December 31 for 2018, which represented greater than 10% of accounts receivable at

December 31, 2019 and 2018, respectively.

Less Allowance for doubtful accounts

Total Accounts Receivable (net)

the years ended December 31, 2020 and 2019, one customer accounted for 37.2% and 12.3%, respectively,

of the Company’s revenues.

receivable at December 31, 2020 and 2019 are made up of trade receivables due from customers in the ordinary course

One customer represented 35.4% of the balance of accounts receivable at December 31, 2020

and two customers made up 20.9% of the accounts receivable balance at December 31 for 2019, which represented

greater than 10% of total accounts receivable at December 31, 2020 and 2019, respectively.

consisted of the following as of December 31:

Equipment and Clearing Service

Raw Materials

Work in process

Finished goods

Finished goods (less Allowance)

Total inventories

GOODWILL AND INTANGIBLE ASSETS

Company’s goodwill balance is attributable to acquisitions.

There have been no impairment charges recorded against goodwill

in 2019 and 2018.

Identifiable intangible assets are stated at cost, net of accumulated amortization.

The assets are being amortized

on the straight-line method over useful lives ranging from 3 to 11 years.

Amortization expense for the years ended December 31,

2019 and 2018 was $2.0 million and $1.8 million, respectively.

have made acquisitions in the past that resulted in the recognition of goodwill.

Based on our analysis there have been

no impairment charges recorded against goodwill in 2020 and 2019.

Identifiable intangible assets are stated at cost,

net of accumulated amortization.

The assets are being amortized on the straight-line method over the estimated useful lives

ranging from 3 to 11 years.

Amortization expense for the years ended December 31, 2020 and 2019 was $2.1 million

and $2.0 million, respectively.

and Intangible assets consisted of the following as of December 31:

2 unchanged sentences

Accumulated amortization

Intangibles, net

future amortization expense on the Customer Relationships, and IP are as follows:

26 unchanged sentences

One vendor made

up 83.0% and 62.7% of our accounts payable in 2019 and 2018, respectively, which represented greater than 10% of accounts payable

at December 31, 2019 and 2018, respectively.

up 92.4% and 83.0% of our accounts payable in 2020 and 2019, respectively, which represented greater than 10% of total

accounts payable at December 31, 2020 and 2019, respectively.

CREDIT FACILITIES AND LINE OF CREDIT

Company maintains operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide

working capital for the business.

July 1, 2016, the Company entered into a Factoring and Security Agreement (the “FASA”) with Action Capital Corporation

(“Action”) to establish a sale of accounts facility, whereby the Company may obtain short-term financing by selling

and assigning to Action acceptable accounts receivable.

Pursuant to the FASA, the outstanding principal amount of advances made

by Action to the Company at any time shall not exceed $5.0 million.

Action will reserve and withhold an amount in a reserve account

equal to 5% of the face amount of each account purchased under the FASA.

The balance at December 31, 2019 is $1.4 million.

per annum interest rate with respect to the daily average balance of unpaid advances outstanding under the FASA (computed on a

monthly basis) will be equal to the “Prime Rate”

maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us working

July 2016, we entered into a Factoring and Security Agreement (the “FASA”) with Action Capital Corporation (“Action”)

to establish a sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and assigning

acceptable accounts receivable to Action.

Pursuant to the FASA, the outstanding principal amount of advances made by Action at

any time shall not exceed $5.0 million.

Action reserves and withholds to 5% of the face amount of each account purchased in a

reserve account.

As of December 31, 2020 and 2019, the balance outstanding was $4,914 thousand and $1,365 thousand,

respectively.

annual interest rate with respect to the daily average balance of unpaid advances outstanding under the FASA (computed on a monthly

basis) is equal to the “Prime Rate”

of Wells Fargo Bank N.A.

plus 2%, plus a monthly fee equal to 0.75%

of such average outstanding balance.

The Company shall also pay all other costs incurred by Action under the FASA, including all

The FASA will continue in full force and effect unless terminated by either party upon 30 days’

prior written

Performance of the Company’s obligations under the FASA is secured by a security interest in certain collateral

of the Company.

The FASA includes customary representations and warranties and default provisions for transactions of this type.

DEFERRED REVENUE

May 2014, the FASB issued new revenue recognition guidance under ASU 2014-09 that supersedes the existing revenue recognition

guidance under U.S.

Generally Accepted Accounting Principles (“GAAP”).

The new standard, ASC Topic 606, focuses on

creating a single source of revenue guidance for revenue arising from contracts with customers for all industries.

The objective

of ASC Topic 606, the new standard, is for companies to recognize revenue when it transfers the promised goods or services to

its customers at an amount that represents what the company expects to be entitled to in exchange for those goods or services.

Since the issuance of the original standard, the FASB has issued several other subsequent updates including the following:

clarification of the implementation guidance on principal versus agent considerations (ASU 2016-08);

2) further guidance on identifying

performance obligations in a contract as well as clarifications on the licensing implementation guidance (ASU 2016-10);

3) rescission

of several SEC Staff Announcements that are codified in Topic 605 (ASU 2016-11);

and 4) additional guidance and practical expedients

in response to identified implementation issues (ASU 2016-12).

The Company took into the guidance provided in these ASUs related

to revenue recognition.

the Company has adopted ASC Topic 606 as of January 1, 2018 using the modified retrospective transition approach, in which the

cumulative effect of applying the standard would be recognized at the date of initial application.

An adjustment to decrease deferred

revenue in the amount of $1.2 million was established on the date of adoption relating to amounts deferred related to extended

service contract sales through December 31, 2017.

Prior to adoption of ASC Topic 606 net revenue from the sales of these contracts

would be recognized immediately since the Company has no continuing obligation related to the sale of these products if the new

guidance had been applied in the past.

As a result of the adoption the Company recognizes revenue from extended service contracts

on a net versus gross basis in the consolidated statements of operations.

The Company recognized the cumulative effect of initially

applying ASC Topic 606 as an adjustment of $1.2 million of net deferred revenue to the opening balance of accumulated deficit.

NOTES PAYABLE, RELATED PARTIES

payable, related parties consisted of the following as of December 31:

Note payable –

debt restructure Marin

Note payable –

debt restructure Thomet

Note payable –

debt restructure Zicman

Convertible note payable –

plus 2.0%, plus a monthly fee equal to 0.75% of the average

outstanding balance.

we also pay all other costs incurred by Action under the FASA, including all bank fees.

The FASA continues

in full force and effect unless terminated by either party upon 30 days’

prior written notice.

The FASA credit facility

is collateralized with a security interest in certain assets of the Company.

The FASA includes customary representations

and warranties and default provisions for transactions of this type.

RELATED PARTY NOTES PAYABLE

party notes payable, consisted of the following as of December 31:

Note payable –Marin

Note payable –Thomet

Note payable –Zicman

Note payable–Shareholder Convertible Note

Note payable - RWCC

4 unchanged sentences

in the amount of $15 thousand and $49 thousand, respectively.

payable –

debt restructure Marin

February 28, 2018, the Company entered into two settlement agreements with David and Kathy Marin (the “Marin Settlement

Agreements”).

Pursuant to the first Marin Settlement Agreement (the “Marin Settlement Agreement I”), the Company

and the Marins agreed to reduce the Company’s purchase price for all of the capital stock of Bar Code Specialties, Inc.,

which was acquired by the Company from the Marins in November 2014.

In the 2014 acquisition, the Company had issued David Marin

a promissory note for $11.0 million of which an aggregate of $10.7 million.

(the “Owed Amount”) was outstanding as

of February 26, 2018 which includes accrued interest earned but not paid.

Pursuant to the Marin Settlement I Agreement, the amount

of the indebtedness owed to Marin was reduced by $9.5 million.

bringing the total amount owed to $1.2 million.

Section 3.1 of

the original note was amended to provide that the Company shall pay the Marins 60 monthly payments of $20 thousand each commencing

the earlier of (i) October 26, 2018 and (ii) the date that the Company’s obligation to Scansource, Inc., currently in the

amount of $1.8 million is satisfied and all amounts currently in default under the credit agreement with Scansource (currently

approximately $ 6.0 Million) is reduced to $2.0 million.

The Marins have agreed to release their security interest against the

In connection with the $9.5 million.

reduction in the purchase price, the Company issued the Marins 3 year warrants to

purchase an aggregate of 150,000 shares of Common Stock at an exercise price of $4.00 per-share.

On February 28, 2018, the Company entered

into an additional settlement agreement with the Marins (the “Marin Settlement Agreement II”) whereby the Company

settled a promissory note owed to the Marins in the original principal amount of $100 thousand which currently had a balance of

$111 thousand in its entirety in exchange for an aggregate of 85,000 shares of the Company’s Series C Preferred Stock.

Series C Preferred Shares outstanding are convertible into common stock at the rate of 20 Preferred Shares to one share of common

The Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of Preferred

Stock which convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per

20 shares of Preferred Stock which convert to one share of common stock) in the event that the Company’s common stock has

a closing price of $30 per share for 20 consecutive trading days.

The Preferred Stock pays a 6% dividend commencing two years

from issuance.

During the first two years, the Series C Preferred Stock shall neither pay nor accrue the dividend.

also agreed to transfer title to a vehicle that was being utilized by Mr.

Marin to David Marin.

In exchange therefor, the $100

thousand Note and the accrued interest thereon was cancelled in its entirety.

Payable -Marin

December 2017, we entered into a $660 thousand, 1.89% annual interest rate note payable (the “Marin Note”) with two

individuals from whom we previously acquired their company (in 2014).

The Marin Note is payable in 60 monthly principal payments

of $20 thousand beginning in October 2018.

Accrued interest payable as of December 31, 2020, was $56 thousand.

Accrued interest

is payable at maturity.

Payable –

debt restructure Thomet

February 22, 2018, the Company entered into a settlement agreement with Kurt Thomet whereby the Company settled its indebtedness

Thomet in the current amount of $5.4 million in full in exchange for 60 monthly payments of $12,500 each commencing the

earlier of (i) October 26, 2018 or (ii) the date when the Company’s obligation under its promissory note with Scansource,

currently in the amount of $1.8 million is satisfied and all amounts currently due under the credit agreement with Scansource

(currently approximately $6.0 million) is reduced to $2.0 million.

In addition, the Company issued Mr.

Thomet an aggregate of

25,000 shares of restricted common stock and 1,000,000 shares of Series C Preferred Stock with the same rights and restrictions

as described above in the description of the Marin Settlement II Agreement.

December 2017, we entered into a $750 thousand, zero percent annual interest rate note payable (the “Thomet Note”)

with an individual from whom we previously acquired his company (in 2014).

The Thomet Note is payable in 60 monthly principal

payments of $13 thousand beginning in October 2018.

Payable –

debt restructure Zicman

On February 19, 2018, the Company entered

into a settlement agreement with George Zicman whereby the Company settled its indebtedness to Mr.

Zicman in the current amount

of $1.3 million in full in exchange for 60 monthly payments of $3 thousand each commencing the earlier of (i) October 26, 2018

or (ii) the date when the Company’s obligation under its promissory note with Scansource, Inc.

currently in the amount of

$1.8 million is satisfied and all amounts currently due under the credit agreement with Scansource (currently approximately $6.0

million) is reduced to $2.0 million.

In addition, the Company issued Mr.

Zicman an aggregate of 5,000 shares of common stock and

600,000 shares of Series C Preferred Stock with the same rights and restrictions as described above in the description of the

Marin Settlement II Agreement.

Each of the Marins, Thomet and Zicman entered

into a voting agreement with the Company whereby they agreed to vote any shares of common stock beneficially owned by them as

directed by the Company’s CEO and also agreed to a leakout restriction whereby they each agreed not to sell more than 10%

of the common stock beneficially owned during any 30-day period.

Preferred Stock note payable

Quest preferred stock 6% note payable is in conjunction with the promissory note issued in October 2015 related to the redemption

and cancelation of 100% of the issued and outstanding Series A preferred stock as well as 170,000 stock options that had

been issued to a now former employee.

The principal payments have been postponed.

In June 2016, the holder of the note granted

the Company a forgiveness of debt in the amount of $75 thousand which was recorded as an increase in the additional paid in capital

because it was a related party transaction.

In addition, on June 17, 2016, the Company entered into Promissory Note Conversion

Agreement with the Noteholder whereby $1.8 million of the promissory note was converted into 1,800,000 shares of Series C Preferred

In July 2016, the holders of the notes signed subordination agreements with the Supplier of the Secured Promissory Note

and Action, whereby the noteholder agree to subordinate its right and payment of capital and interest until the Supplier with

the Secured Promissory Note is reimbursed in full.

During the year ended December 31, 2018, the Company issued 430,000 shares

of the Company’s common stock at a fair value of $2.7 million for the conversion of the principal and accrued interest of

$1.2 million and $0.2 million, respectively, or $1.4 million.

The difference of $1.3 million was recorded as loss on debt settlement

in the consolidated statement of operations.

February 2018, we entered into a $180 thousand note payable Zicman.

In May 2020, the Company and Zicman entered into a conversion

agreement (the “Conversion Agreement”) whereby Zicman agreed to convert the principal outstanding on the note as of

May 2020, into OMNIQ common stock ($0.001 par value).

The total principal and interest outstanding as of May 2020 was $168 thousand

which was converted, in accordance with the Conversion Agreement, into 24,000 shares of OMNIQ common stock.

Note Payable –

convertible note payable –

shareholders relates to the purchase price paid for the acquisition of HTS.

The Note is in the

amount of $700 thousand with $350 thousand due to each of the two sellers.

The $700 thousand was due and payable on October 5,

2019 with accrued interest at the rate of 6.0% per annum.

Holders have the right, at any time on or after the Issue Date, to convert all or any portion of the then outstanding and unpaid

principal amount and interest (including any Default Interest) into fully paid and non-assessable shares of the Company’s

common stock, as such common stock exists on the conversion date, or any shares of the Company’s capital stock or other

securities of the Company into which such common stock shall hereafter be changed or reclassified, at the conversion price (as

defined below) determined as provided herein (a “Conversion”);

The number of conversion shares to be issued upon each

conversion of the note shall be determined by dividing the conversion amount by the applicable conversion price then in effect

on the date specified in the notice of conversion delivered to the Company by the holder.

The conversion rate was set at $4.72

On April 4, and in connection with the

Securities Purchase Agreement, Shai Lustgarten, the Company’s Chief Executive Officer, and Carlos J.

Nissenson, a consultant

to and principal stockholder of the Company, participated in the Offering by converting $200 thousand each of unpaid principal

owed to them from the HTS acquisition (the “Conversions”), by the Company in exchange for Shares and Warrants on the

same terms as all other Purchasers.

On September 30, 2019, and in accordance

with the terms of the Convertible Promissory Note, Walefar and Campbeltown each exercised the right to convert $75 thousand in

unpaid principal balance into fully paid and non-assessable shares of the Company’s common stock at a conversion price of

Accordingly, the Company issued 317,796 shares to each of Walefar and Campbeltown.

As a result of the Conversions, a principal

amount of $150 thousand is owed to each Walefar and Campbeltown respectively under the convertible note payable.

payable - RWCC

The company acquired the Note Payable –

Convertible Note

October 2018, we entered into a $700 thousand, 6% annual interest rate convertible note payable (the “Shareholder Convertible

Note”) with Walefar and Campbeltown (collectively the “Holders”), in connection with the HTS Image Processing,

Mr Shai Lustgarten, our Chief executive Officer and Director is the principal shareholder in Walefar.

a consultant and significant shareholder in OMNIQ, is the principal shareholder in Campbeltown.

Shareholder Convertible Note provided Holders a right , at any time on or after the loan origination date, to convert all or any

portion of the then outstanding and unpaid principal amount and interest (including any Default Interest) into fully paid and

non-assessable shares of OMNIQ’scommon stock.The number of conversion shares to be issued upon each conversion of the note

shall be determined by dividing the conversion amount by the applicable conversion price then in effect on the date specified

in the notice of conversion delivered us by the Holder.

The conversion rate was set at $4.72 per share.

April 2019, and in accordance with the Convertible Shareholder Note, the Holders converted $400 thousand ($200 thousand each)

of unpaid principal outstanding.

The Holders received 87,476 (42,373 each) common stock shares and 87,476 (42,373 each) in common

stock warrants.

September 2019, and in accordance with the terms of the Convertible Shareholder Note, the Holders, exercised the right to convert

$150 thousand ($75 thousand each) in unpaid principal balance into fully paid and non-assessable shares of our common stock at

a conversion price of $4.72.

Accordingly, the Company issued 31,780 common shares (15,890 shareseach) to the Holders.

We acquired the Note Payable –

RWCC (“RWCC Note”) with the acquisition of HTS.

The Certus Note was a non-interest-bearing note.

Certus Note was historically discounted using an effective interest rate of 5.0%.

The outstanding balance of $1.0 million is due

and payable in April 2020 with monthly payment of approximately $85 thousand per month.

The Certus Note is classified as a related

party note because the Chief Executive Officer of Certus, Ltd.

is the son of a significant shareholder of the Company and a sibling

of the Company’s Chief Financial Officer and member of the Board of Directors.

The repayment of the notes payable, related parties as of December

31, 2019 is as follows for the years ending December 31,:

12 - NOTES PAYABLE

payable consists of the following as of December 31,:

Supplier Secured Note Payable

Long Term Notes

The RWCC Note was a non-interest-bearing note.

The RWCC Note was historically

discounted using an effective interest rate of 5.0%.

As of December 3, 2020, this note is paid off.

The RWCC Note was classified

as a related party note because the Chief Executive Officer of RWCC is the son of a significant shareholder of the Company and

a sibling to the Chief Financial Officer.

repayment of the notes payable, related parties as of December 31, 2020, is as follows for the years ending December 31, 2020:

OTHER NOTES PAYABLE

notes payable consists of the following as of December 31, 2020:

Note Payable - Secured Supplier Note

Notes Payable - other

Less current portion

Long Term Notes Payable

maturities of notes payable are as follows for the years ending December 31, 2020:

Paycheck Protection Program Note Payable

In May 2020, we entered into a Loan Agreement with Zions Bank corporation, NA (“Zions”) whereby

we borrowed $887,500 from Zions under the Small Business Administration’s (the “SBA”) Paycheck Protection Program.

In October 2020, OMNIQ applied for and was granted forgiveness of the full amount owed (including accrued interest) by Zions on

behalf of the SBA.

We recognized a gain on forgiveness of debt of $887,500;

included in early other (expenses) income on the consolidated

statements of operations.

Secured Note Payable

July 18, 2016, the Company and the supplier entered into that certain Secured Promissory Note, with an effective date of July

1, 2016, in the principal amount of $12.5 million.

The USD Note accrues interest at 12% per annum and is payable in six consecutive

monthly installments of principal and accrued interest in a minimum principal amount of $250 thousand each, with any remaining

principal and accrued interest due and payable on December 31, 2016.

November 30, 2016, the Company entered into an Amendment Agreement to the secured Promissory Note whereby the maturity date

was extended to March 31, 2017 and the monthly installments of principal and accrued interest were increased to $400 thousand

commencing December 15, 2016 with any remaining principal and accrued interest due and payable on March 31, 2017.

The Amendment

also provides that the Company will make an additional principal payment of $300 thousand by December 15, 2016.

March 31, 2017, the Company entered into a Second Amendment Agreement to the secured Promissory Note whereby the maturity

date was extended to September 30, 2017 whereby any remaining principal and accrued interest is due and payable on September

The Amendment also provides that the Company will continue to make monthly installments of principal and accrued

interest in a minimum principal amount of $400 thousand each.

September 30, 2017, the Company entered into a Third Amendment Agreement to the secured Promissory Note whereby the maturity

date was extended to October 31, 2017.

The Amendment also provides that the Company will continue to make monthly installments

of principal and accrued interest in a minimum principal amount of $600 thousand each.

November 15, 2017 the Company entered into a Fourth Amendment extending the maturity date to December 31, 2017 and this Fourth

Amendment is effective on October 31, 2017 whereby any remaining principal and accrued interest is due and payable on December

The Amendment also provides that the Company will continue to make monthly installments of principal and accrued

interest in a minimum principal amount of $600 thousand each.

February 14, 2018 the Company entered into a Fifth Amendment extending the maturity date to March 31 st , and this

Fifth Amendment is effective on December 31, 2017 whereby any remaining principal and accrued interest is due and payable

on March 31, 2018.

The Amendment also provides that the Company will continue to make monthly installments of principal and

accrued interest in a minimum principal amount of $400 thousand each.

September 14, 2018, the Company entered into a Sixth Amendment extending the maturity date to January 31, 2019.

The Amendment

also increases the principal amount to $8.7 million, an increase of $6.8 million , by rolling the Company’s existing

outstanding accounts payable into the note by the previously mentioned amount of increase.

April 30, 2019, the Company entered into a Seventh Amendment extending the maturity date to July 31, 2019.

The Amendment also

provides that the Company will continue to make monthly installments of principal and accrued interest in a minimum principal

amount of $350 thousand each.

The Company has made partial payments towards the required monthly installments under the terms

of the Seventh Amendment.

As has been the case with each previous amendment, the Company is in continual negotiations with

the holder of the Secured Promissory Note to extend the maturity date and establish a new schedule of payments.

Davidson Promissory Note

connection with the BCS acquisition, the Company assumed a related party note payable to the former CTO of the RFID division of

The note is payable in equal monthly installments of $5 thousand beginning October 31, 2014 and ending October 2018.

loan bears interest at 8% and is unsecured and subordinated to the Company’s bank debt.

The balance on this loan at December

31, 2019 and 2018 was $137 thousand and $130 thousand, respectively, of which all was classified as long term.

In July 2016, the

holder of the note signed a subordination agreement with the Supplier of the Secured Promissory Note and Action, whereby the noteholder

agrees to subordinate its rights to payment of capital and interest until the Supplier with the Secured Promissory Note is reimbursed

This is subordinated to the Supplier Secured Note payable and can’t be paid until the Supplier Secured Note Payable

is satisfied;

therefore, the note is classified as long-term.

Trust Promissory Note

January 2016, the Company entered into a Stock Redemption Agreement whereby the Company would repurchase 25,354 shares of common

stock for $220 thousand on an installment basis which was recorded as a note on the transaction date carrying interest at 9%.

As at December 31, 2018, the Company did not complete the redemption of 25,354 shares of common stock and the remaining balance

of the note was $241 thousand.

In February 2018, the Company made the final payment and the 25,354 shares were cancelled.

July 2016, we and a supplier entered into a secured promissory note (the “Secured Supplier Note”), in the principal

amount of $12.5 million and interest at 12% per annum.

The Secured Supplier Note was to be paid in six consecutive monthly

installments of a minimum principal amount of $250 thousand each principal and accrued interest, , with any remaining principal

and accrued interest due and payable on December 31, 2016.

November 2016 through March 2019, the Secured Supplier Note was amended six times (the “Amendments”), each time adjusting

the payment terms and maturity date.

April 2019, we entered into a seventh amendment extending the maturity date to July 31, 2019.

This amendment requires we make

three installment payments as follows:

a minimum payment in the amount $350 thousand plus all accrued interest on the principal due by May 15, 2019;

a minimum payment in the amount of $500 thousand plus all accrued interest on the principal through such payment date, shall

be due by June 15, 2019

a minimum payment in the amount of $750 thousand plus all accrued interest on the principal through such payment date, shall

be due by July 15, 2019;

remaining principal and interest due at maturity.

have made partial payments towards the required monthly installments under the terms of this amendment.

As has been the case with

each previous amendment, we are in continual negotiations with the holder of the Secured Supplier Note to extend the maturity

date and establish a new schedule of payments.

Payable - Other

In connection with the acquisition of Bar

Code Specialties, Inc.

(“BCS”), a California corporation, the Company assumed a related party note payable to the

former CTO of the RFID division of BCS.

The note is payable in equal monthly installments of $5 thousand beginning October 31,

2014 and ended October 2018.

The loan bears interest at 8.0% and is unsecured and subordinated to the Company’s bank debt.

On June 5, 2020, the Company reached an agreement with the noteholder to convert an aggregate of $261 thousand in principal, unpaid

interest, and penalties into an aggregate of 37,270 shares of Common Stock at a conversion price of $7.00 per share, which was

based on the closing price on June 3, 2020.

The balance on this loan at December 31, 2020 and December 31, 2019 was $0 and $137

thousand, respectively, all of which was classified as long-term

OTHER LIABILITIES

6 unchanged sentences

Total long term other liabilities

Company had purchased key man life insurance policies for some of its executives to insure the Company against risk of loss of

an executive.

Should loss of an executive occur, those funds would be used to pay off their respective promissory notes, repurchase

their shares and settle out any amounts owed to them and their estate.

June 10, 2016, the Company entered into an assignment and assumption with three of the beneficiaries of the key man insurance

The agreement states that the Company will be assigning the policy over to the beneficiary and the beneficiary will

assume all the obligations under the premium financed note in place.

The premium financed note has to be bifurcated with the lender

in order to complete the transaction.

December 31, 2017, the balance of amount of premium financed note for the remaining policy is $1.5 million and the cash value

of the policy as of this date is $1.4 million, with a net negative cash value of the policies of $86 thousand.

value of the policies is recorded at the new value per the right of offset noted in Topics 210-220.

To have right of offset, the

Company would need to show (1) amounts of debt are determinable, (2) reporting entity has the ‘right’

to setoff, (3)

the right is enforceable by law, and (4) reporting entity has the ‘intention’

Given that the Company has

met all of these, the Company has elected to use the right of setoff as the cash value of the policies is being used as the collateral

for the loans.

Should the Company default on payments to the policy or determine to not continue with the policies, the cash value

of the policy is intended to pay off of the loan.

The Company also intends to settle out the loans in the future with the cash

value of the policy.

of June 30, 2018, the Company has no further obligations related to the key man insurance policies other than finalizing paperwork

on the latter assignments and in removing the liabilities from the Company books.

As a result, the company recognized an accounting

gain of $150 thousand.

prior years, we purchased key man life insurance policies for some of our executives to insure against risk of loss of an executive.

As of December 31, 2020, we had $332 thousand in accrued obligations other liabilities related to the key man insurance

COMMITMENTS AND CONTINGENCIES

Company maintains a contributory profit sharing plan covering substantially all fulltime employees within the requirements of

the Employee Retirement Income Security Act of 1974 (“ERISA”).

In 2016, the Safe Harbor element was removed from the

plan and the employer may make a discretionary matching contribution equal to a uniform percentage or dollar amount of participants’

maintain a contributory profit-sharing plan covering substantially all fulltime employees within the requirements of the

Employee Retirement Income Security Act of 1974 (“ERISA”).

In 2016, the Safe Harbor element was removed from the plan

and the employer may make a discretionary matching contribution equal to a uniform percentage or dollar amount of participants’

elective deferrals for each Plan Year.

In 2015, the Company is required to make a safe harbor non-elective contribution equal

to 3 percent of a participant’s compensation.

The plan also includes a 401(k) savings plan feature that allows substantially

all employees to make voluntary contributions and provides for discretionary matching contributions determined annually by the

Board of Directors.

In 2015, we were required to make a safe harbor non-elective contribution equal to 3 percent

of a participant’s compensation.

The plan also includes a 401(k) savings plan feature that allows substantially all employees

to make voluntary contributions and provides for discretionary matching contributions determined annually by the Board of Directors.

For the years ending December 31, 2020, and 2019, the Company elected to forgo the match.

As of December 31, 2019, the Company has three

operating leases for office and assembly space and no financing leases.

of December 31, 2020, we had two Operating leases as follows:

space in Akron, Ohio, with monthly payments of $3 thousand and an incremental borrowing rate of 14.55%.

As of December 31,

2020, we had 29 months remaining on the lease.

vehicle with monthly payments of less than $1 thousand.

As of December 31, 2020, the Company had 13 months remaining on the

Effective January 1, 2019 we adopted Topic

Targeted Improvements.

As of December 31, 2020 we had two operating leases for office and assembly

space and no financing leases.

We elected the practical expedient ASU 2018-11, Leases (Topic 842):

Targeted Improvements

which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date.

Therefore, we recognized

and measured leases existing at January 1, 2019 (inception date).

In addition, the Company elected the optional practical expedient

permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing

leases upon adoption.

Lastly, the Company elected a short-term lease exception policy, permitting it to exclude the recognition

requirements of this standard from leases with initial terms of 12 months or less.

No impact was recorded to the income statement

or beginning retained earnings for Topic 842.

January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments,

including annual rent increases, over the lease term at commencement date.

Operating leases in effect prior to January 1, 2019

were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019.

As none of our

leases included an implicit rate of return, we used our incremental borrowing rate based on lease term information available as

of the adoption date or lease commencement date in determining the present value of lease payments.

The impact of ASU No.

2016-02 on our consolidated

balance sheet beginning January 1, 2019 was through the recognition of ROU assets and lease liabilities for operating leases.

on our consolidated balance sheet beginning January 1, 2019 was through the recognition of ROU assets and lease liabilities for

operating leases.

Amounts recognized at January 1 and December 31, 2019 for operating leases are as follows:

2 unchanged sentences

Lease liability

Company elected the practical expedient ASU 2018-11, Leases (Topic 842):

Targeted Improvements which allows the Company

to apply the transition provision for Topic 842 at the Company’s adoption date.

Therefore, the Company recognized and measured

leases existing at January 1, 2019 (inception date).

In addition, the Company elected the optional practical expedient permitted

under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing leases

upon adoption.

Lastly, the Company elected a short-term lease exception policy, permitting it to exclude the recognition requirements

of this standard from leases with initial terms of 12 months or less.

No impact was recorded to the income statement or beginning

retained earnings for Topic 842.

Beginning January 1, 2019, operating ROU

assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases,

over the lease term at commencement date.

Operating leases in effect prior to January 1, 2019 were recognized at the present value

of the remaining payments on the remaining lease term as of January 1, 2019.

As none of our leases included an implicit rate of

return, we used our incremental borrowing rate based on lease term information available as of the adoption date or lease commencement

date in determining the present value of lease payments.

On January 1, 2019, the Company had three

operating leases for office and/or warehouse space and one operating lease for a vehicle.

The Company was leasing approximately

7,000 sf of office space in Eugene, OR with monthly payments of $4 thousand and an incremental borrowing rate of 15.06%.

2019, the Company terminated this lease.

On January 1, 2019, the Company was also leasing a small office space in Akron, OH with

monthly payments of $3 thousand and an incremental borrowing rate of 14.55%.

As of December 31, 2019, the Company had 41 months

remaining on the lease with a lease liability of $96 thousand.

On January 1, 2019, the Company was also leasing a small office

and warehouse in Anaheim, CA with monthly payments of $2 thousand and an incremental borrowing rate of 14.83%.

As of December

31, 2019, the Company had 12 months remaining on the lease with a lease liability of $28 thousand.

On January 1, 2019, the Company

was leasing a vehicle with monthly payments of less than $1 thousand and an incremental borrowing rate of 14.83%.

January 1, 2019, we had three operating leases for office and/or warehouse space and one operating lease for a vehicle as follows:

were leasing approximately 7,000 sf of office space in Eugene, Oregon, with monthly payments of $4 thousand and an incremental

borrowing rate of 15.06%.

This lease was terminated in December 2019.

were leasing a small office space in Akron, Ohio, with monthly payments of $3 thousand and an incremental borrowing rate of

As of December 31, 2019, we had 41 months remaining on the lease with a lease liability of $96 thousand.

were leasing a small office and warehouse in Anaheim, California, with monthly payments of $2 thousand and an incremental

borrowing rate of 14.83%.

As of December 31, 2019, we had 12 months remaining on the lease with a lease liability of $28 thousand.

were leasing a vehicle with monthly payments of less than $1 thousand and an incremental borrowing rate of 14.83%.

As of December

31, 2019, the Company had 25 months remaining on the lease with a lease liability of $9 thousand.

Other information related to our operating

leases is as follows:

information related to our operating leases is as follows:

ROU asset - January 1, 2019

2 unchanged sentences

Lease liability - December 31, 2019

ROU asset - January 1, 2020

ROU asset - December 31, 2020

Lease liability - January 1, 2020

Lease liability - December 31, 2020

December 31, 2020

Lease liability

As of December 31, 2019, our operating

leases had a weighted average remaining lease term of 33.78 months and a weighted average discount rate of 14.63%.

The table below reconciles the fixed component

of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded

on the Consolidated Balance Sheet as of December 31, 2019:

of December 31, 2020, our operating leases had a weighted average remaining lease term of 39.97 months and a weighted average

discount rate of 14.57%.

table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining

years to the lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2020:

Minimum lease payments

3 unchanged sentences

Long term lease obligations

Company was sued by Kurt Thomet for breach of obligations related to the outstanding debt obligations remaining from the promissory

note executed on January 18, 2014 and subsequent amendments.

The lawsuit was withdrawn in 2018 with the restructure of debt the

subsequent to year end but effective December 31, 2018.

The Company is not a party to any other pending material legal proceeding.

To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against

To the knowledge of management, no director, executive officer or affiliate of the Company, any owner of record or

beneficially of more than five percent of the Company’s Common Stock is a party adverse to the Company or has a material

interest adverse to the Company in any proceeding.

subsidiary, OMNIQ Vision, Inc.

(f/k/a HTS (USA), Inc.), was previously in litigation with a former employee who claimed that he

was owed wages and commissions.

As of March 31, 2020, the case had been resolved.

While the terms of the resolution are confidential,

management has determined that the amounts involved in resolving the case are immaterial to the financial statements taken as

The Company recently was named a defendant

in a Mississippi state lawsuit that is directly related to the RedLPR case (the “Mississippi case”).

The Mississippi

case also names RedLPR, LLC as a defendant.

The Mississippi case was brought by Riverland Park Technologies (“Riverland”).

Riverland is also a party to the RedLPR case.

The Mississippi case was filed in the Circuit Court of Rankin County, Mississippi

on September 21, 2020.

The Company was named a defendant in

a case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions.

The Company’s

position is that the former employee’s claims have no apparent factual basis and appear to be designed to force a quick

“nuisance value”

This case was filed in the Superior Court of the State of California, County of San Diego

on October 21, 2020.

company is not a party to any other pending material legal proceeding.

To the knowledge of management, no federal, state or local

governmental agency is presently contemplating any proceeding against the Company.

To the knowledge of management, no director,

executive officer or affiliate of the Company, any owner of record or beneficially of more than five percent of the Company’s

Common Stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

STOCKHOLDERS’

of December 31, 2019 and 2018, there were 1,000,000 Series A preferred shares designated and 0 Series A preferred shares outstanding.

of December 31, 2020 and 2019, there were 1,000,000 Series A preferred shares authorized and zero Series A preferred shares outstanding.

The board of directors had previously set the voting rights for the preferred stock at 1 share of preferred to 13 common shares.

of December 31, 2019 and 2018, there was 1 preferred share designated and 0 preferred shares outstanding.

of December 31, 2019 and 2018, there were 15,000,000 Series C Preferred Shares authorized with 4,828,530 issued and outstanding.

The series C preferred shares have preferential rights above common shares and the Series B Preferred Shares and is entitled to

receive a quarterly dividend at a rate of $0.06 per share per annum and have a liquidation preference of $1 per share.

As part of several debt settlement agreements effective December 30, 2017, 1,685,000 shares of Series C Preferred Stock were issued,

with the caveat that the shares will not pay and will not accrue dividends for a 24-month period or any time prior to March 1,

Series C preferred shares outstanding are convertible into common stock at the rate of 20 preferred shares to one share

of common stock.

As of December 31, 2019 and 2018, the accrued dividends on the Series C Preferred Stock was $344 thousand and

$478 thousand, respectively.

Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of preferred

stock which convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00

per 20 shares of preferred stock which convert to one share of common stock) in the event that the Company’s common

stock has a closing price of $30 per share for 20 consecutive trading days.

November 11, 2019, the Company implemented a one-for-20 reverse stock split of the Company’s common stock.

The par value

of common stock and the number of authorized shares were not adjusted as a result of the reverse stock split.

All share and per

share amounts in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give

effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional

paid-in capital.

September 30, 2019, and in accordance with the terms of the Convertible Promissory Note, Walefar and Campbeltown each exercised

the right to convert $75 thousand in unpaid principal balance into fully paid and non-assessable shares of the Company’s

common stock at a conversion price of $0.236.

Accordingly, the Company issued 317,796 shares to each of Walefar and Campbeltown.

September 5, 2019, the Company entered into a letter agreement with Shai Lustgarten, the Company’s Chief Executive Officer,

pursuant to which the Company and Mr.

of December 31, 2020 and 2019, there was one (1) preferred share authorized and zero preferred shares outstanding.

of December 31, 2020 and 2019, there were 5,000,000 Series C Preferred Shares (“Series C”) authorized with

2,145,030 and 4,828,530 issued and outstanding, respectively.

The Series C shares have preferential rights above common shares

and the Series B Preferred Shares and is entitled to receive a quarterly dividend at a rate of $0.06 per share per annum and have

a liquidation preference of $1 per share.

Series C shares outstanding are convertible into common stock at the rate of 20 preferred

shares to one share of common stock.

As of December 31, 2020 and 2019, the accrued dividends on the Series C Preferred Stock was

$253 thousand and $344 thousand, respectively.

June 2020, certain holders of Series C Shares elected to convert $2.7 million or 2,683,500 Series C shares and $283 thousand in

accrued dividends in exchange for 190,365 OMNIQ common stock shares.

Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of preferred stock

which convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per 20 shares

of preferred stock which convert to one share of common stock) in the event that the Company’s common stock has a closing

price of $30 per share for 20 consecutive trading days.

August 2020, OMNIQ’

Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain

in the employ of and attract new employees, directors, officers, consultants, advisors and employees to the Company.

to the Plan, one million (1,000,000) shares of the Company’s common stock, par value $0.001 (the “Shares”),

were set aside and reserved for issuance.

The Plan approved by our stockholders at the September 2020, shareholders’

For the year ending December 31, 2020, we issued 336,146 shares ( $1.6 million) to consultants and advisors for services rendered.

December 2015, our Board of Directors approved the OMNIQ.

Employee Stock Purchase Plan (the “ESPP”).

For the years

ending December 31, 2020 and 2019, employees purchased 302 ($1 thousand) shares and 287 ($1 thousand) shares of commons stock.

the years ending December 31, 2020 and 2019, 216,750 and zero, respectively, in stock options and stock warrants were exercised

in exchange for 90,691 shares of OMNIQ common stock.

April 2020 and in conjunction with the Eyepax acquisition, we issued the former owner 80,000 share of OMNIQ common stock.

September 2020 and pursuant to the 2020 Equity Incentive Plan, we granted options to purchase an aggregate of 745,000 shares of

our common stock to certain of our employees, officers and directors.

Included in the total shares granted are options to purchase

230,000 shares of its common stock to Mr.

Shai Lustgarten, our Chief Executive Officer, options to purchase 40,000 shares of its

common stock to Mr.

Neev Nissenson, our Chief Financial Officer, options to purchase 150,000 shares of its common stock to Mr.

Nissensohn, a consultant and principal stockholder, and options to purchase 10,000 shares of its common stock to our

Directors Andy MacMillan and Yaron Shalem, respectively.

The remaining 305,000 granted options are for other employees and

The exercise price of all of the options granted was $4.40 per share, which was the closing price of the Company’s

common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten and Carlos J.

Nissensohn, which have an exercise price of $4.84 per share.

The options granted to Shai Lustgarten and Carlos J.

Nissensohn have

a term of five (5) years and the balance of the options have a term of ten (10) years.

November 11, 2019, we implemented a one-for-20 reverse stock split of the Company’s common stock.

The par value of common

stock and the number of authorized shares were not adjusted as a result of the reverse stock split.

All share and per share amounts

in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this

reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in

September 2019, and in accordance with the terms of the Convertible Promissory Note, Walefar and Campbeltown each exercised the

right to convert $75 thousand in unpaid principal balance into fully paid and non-assessable shares of the Company’s common

stock at a conversion price of $0.236.

Accordingly, we issued 317,796 shares to each of Walefar and Campbeltown.

September 2019, we entered into a letter agreement with Shai Lustgarten, the Company’s Chief Executive Officer, pursuant

to which we and Mr.

Lustgarten agreed to extend the term of Mr.

Lustgarten’s employment agreement for

an additional two (2) years.

Lustgarten’s employment agreement for an additional two

As consideration and in light of the Company’s achievements under the leadership of Mr.

the Company, pursuant to its 2018 Equity Incentive Plan, issued to Mr.

Lustgarten 50,000 shares of the Company’s common

stock valued at $250 thousand.

September 5, 2019, the Company entered into a letter agreement with Mr.

Nissensohn and/or an entity under his control,

a consultant to the Company and principal stockholder, pursuant to which they agreed to extend the term of Mr.

Lustgarten, the Company,

pursuant to its 2018 Equity Incentive Plan, issued to Mr.

Lustgarten 50,000 shares of the OMNIQ common stock valued at $250 thousand.

September 2019, we entered into a letter agreement with Mr.

Nissensohn and/or an entity under his control, a consultant

to the Company and principal stockholder, pursuant to which they agreed to extend the term of Mr.

Nissensohn’s and/or an

entity under his control’s consulting agreement for an additional two (2) years.

As consideration and in light of Mr.

Nissensohn’s

and/or an entity under his control’s consulting agreement for an additional two (2) years.

As consideration and in light

Nissensohn’s and/or an entity under his control’s past consulting services which the Company believes were

essential to its recent achievements, the Company, pursuant to the 2018 Equity Incentive Plan, issued to Mr.

Nissensohn and/or

an entity under his control 27,500 shares of the Company’s common stock, valued at $138 thousand.

April 4, 2019, the Company entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”)

with accredited investors (the “Purchasers”).

Pursuant to the Securities Purchase Agreement, on April 9, 2019 (the

“Closing Date”), the Company sold an aggregate, with the Conversions included, of $5.0 million of units (the “Units”)

and/or an entity under his control’s past consulting services which we believe were essential to its recent achievements,

we, pursuant to the 2018 Equity Incentive Plan, issued to Mr.

Nissensohn and/or an entity under his control 27,500 shares of the

Company’s common stock, valued at $138 thousand.

April 2019, we entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with accredited

investors (the “Purchasers”).

Pursuant to the Securities Purchase Agreement, on April 9, 2019 (the “Closing

Date”), the Company sold an aggregate, with the Conversions included, of $5.0 million of units (the “Units”)

resulting in gross proceeds of $5.0 million, before deducting placement agent fees and offering expenses (the “Offering”).

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Company’s Chief Executive Officer, and Carlos J.

Nissenson, a consultant to and principal stockholder of the Company, participated

Nissensohn, a consultant to and principal stockholder of the Company, participated

in the Offering by converting $200 thousand each of unpaid principal owed to them from the HTS acquisition (the “Conversions”),

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to the Company on October 5, 2018.

March 2018 and pursuant to the Company’s 2018 Equity Incentive Plan, the Company granted 50,000 shares of the Company’s

common stock valued at $119 thousand to the Company’s Chief Executive Officer Shai Lustgarten.

The shares were valued at

the fair market value of the Company’s common stock on the date of issuance.

2018, the Company issued 3,996 shares of the Company’s common stock, valued at $11 thousand, to employees of the Company

as part of the Company’s 2018 Equity Incentive Plan.

The shares were valued as of the date of grant at the fair value of

the Company’s common stock.

2018, the Company issued 141,022 shares of the Company’s common stock for services rendered by independent third parties,

the Company’s former CFO, and related party noteholders.

The shares were valued at $395 thousand using the fair market value

of the shares on the date of issuance.

2018, the Company issued 430,000 shares of the Company’s common stock at a fair value of $2.7 million for the conversion

of principal and accrued interest of $1.2 million and $247 thousand, respectively, or $1.4 million.

The difference of $1.2 million

was record as interest expense in the consolidated statement of operations.

The shares were valued using the fair value of the

Company’s common stock as of the date of issuance.

June 26, 2018, the Company issued 7,500 shares of common stock to Maren Life Reinsurance LTD as part of a debt settlement agreement.

October 2018, and as partial consideration of the acquisition of HTS, the Company issued 1,122,648 shares of the Company’s

common stock to the previous owners of HTS.

These shares were valued at $5.3 million.

See Note 4 –

Acquisitions for further

January 2016, the Company entered into a Stock Redemption Agreement whereby the Company would repurchase 25,354 shares of common

stock for $230 thousand on an installment basis which was recorded as a note on the transaction date carrying interest at 9%.

In March 2019, the Company made its last payment under the Stock Redemption Agreement and the 25,354 shares were cancelled.

and Stock Options

connection with the April 4, 2019 Securities Purchase Agreement previously described in detail, the Company issued warrants to

purchase 891,667 shares of Common Stock at an exercise price equal to $7.00 per Warrant Share, which Warrants are exercisable

connection with the April 2019 Securities Purchase Agreement previously described, we issued warrants to

purchase 891,667 shares of our common stock at an exercise price equal to $7.00 per Warrant Share, which warrants are exercisable

for a period of five and one-half years from the issuance date.

The warrants were valued at $2.9 million.

Also during 2019, the

Company issued options to purchase 128 thousand shares valued at $564 thousand.

Also during 2019, we

issued options to purchase 128,000 valued at $564 thousand.

options and warrants were valued at the grant date using the Black-Scholes valuation methodology.

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warrants as of December 31, 2020 are as follows:

Exercise Prices

Weighted Average

residual life

Exercise Price

2.20 to 14.00

outstanding have the following expiry date and exercise prices as of the year ended December 31, 2020:

June 26, 2020

October 10, 2020

December 30, 2020

February 02, 2021

August 02, 2021

June 26, 2020

October 10, 2021

February 27, 2022

October 14, 2023

Purchase Option Plan

Company has a stock option plan whereby the Board of Directors, may grant to directors, officers, employees, or consultants of

the Company options to acquire common shares.

The Board of Directors of the Company has the authority to determine the terms,

limits, restrictions and conditions of the grant of options, to interpret the plan and make all decisions relating thereto.

plan was adopted by the Company’s Board of Directors on November 17, 2014 in order to provide an inducement and serve as

a long term incentive program.

October 06, 2024

September 01, 2025

June 04, 2026

December 04, 2027

have a stock option plan whereby the Board of Directors, may grant to directors, officers, employees, or consultants of the Company

options to acquire common shares.

The Board of Directors of the Company has the authority to determine the terms, limits, restrictions

and conditions of the grant of options, to interpret the plan and make all decisions relating thereto.

The plan was adopted by

the Company’s Board of Directors on November 17, 2014 in order to provide an inducement and serve as a long-term

incentive program.

The maximum number of common shares that may be reserved for issuance was set at 500,000.

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issued pursuant to the exercise of share options granted under the Plan..

As at December 31, 2017, the Company had issued options,

allowing for the subscription of 481,250 common shares of its share capital.

Options - The following table summarizes information about stock options granted during the years ended December 31, 2020

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Stock options cancelled, forfeited

Stock options

Exercisable stock

2018, the Company canceled a total of 65,400 stock options.

Stock options exercised

Balance, end of year

Exercisable stock options

stock options as of December 31, 2020, are as follows:

Exercise Prices

residual life

Stock Options

Exercise Price

Stock Options

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February 17, 2022

February 28, 2023

March 05, 2023

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November 30, 2023

Company recorded stock compensation expense relating to the vesting of stock options and warrants as follows for the years ended

December 31, 2019 and 2018;

November 20, 2024

April 20, 2025

September 30, 2030

recorded stock compensation expense relating to the vesting of stock options and warrants as follows for the years ended December

31, 2020 and 2019;

Stock compensation

Stock Option vesting

RELATED PARTY TRANSACTIONS

part of 2018, the Company leased a building from the former owner of BCS for $9 thousand per month, which was believed to be the

current fair market value of similar buildings in the area.

These amounts are included in the lease disclosure schedule, Note

addition, on August 2, 2017, the Company entered into a Consulting agreement with Carlos J.

Nissenson, a principal shareholder

of the Company and a family member of a Director of the Company.

February 2020 we amended the consulting agreement with Mr.

Nissensohn, a principal shareholder of the Company and a

family member of a Director of the Company.

The terms and condition of the contract are as follows:

term with 90 day termination notice by the Company

monthly fee of $15 thousand and a one-time signatory fee of 30,000 restricted shares

warrants to buy shares at $2.20 having a four-year life and a vesting period of 12 months

in four quarterly and equal installments, subject to Mr.

Nissenson’

service to the Company

case the Company procures debt financing during the term of this agreement, without any equity component, Mr.

Nissenson shall

be entitled to 3% of the gross funds raised, however if the Company is required to pay a success fee to another external entity,

Nissenson shall be entitled to only 2% of the gross funds raised

addition to the above, in the event of an equity financing resulting in gross proceeds of at least $3 million to the Company

within 24 months of the date the contract, Mr.

Nissenson shall further be entitled to certain warrants to be granted by the

Company which upon their exercise pursuant to their terms, Mr.

Nissenson shall be entitled to receive QUEST shares which represent

3% of the QUEST issued share capital immediately prior to the consummation of such investment.

The warrants will carry an

exercise price per warrant/share representing 100% of the closing price per share as closed in the equity financing.

section and the issue of the warrant by QUEST are subject to the approval of the Board of Directors of QUEST.

the Board does not approve the issuance of warrants;

Nissenson will be entitled to a fee with the equivalent value

based on a Black Scholes valuation

monthly fee of $30 thousand.

we procure debt financing during the term of Mr.

Nissensohn’s agreement, without any equity component, Mr.

shall be entitled to 3% of the gross funds raised, however if we are required to pay a success fee to another external entity,

Nissensohn shall be entitled to only 2% of the gross funds raised.

addition to the above, in the event of an equity financing resulting in gross proceeds of at least $3 million to us within

24 months of the date the contract, Mr.

Nissensohn shall further be entitled to certain warrants to be granted by us which

upon their exercise pursuant to their terms, Mr.

Nissensohn shall be entitled to receive OMNIQ shares which represent 3% of

the OMNIQ issued share capital immediately prior to the consummation of such investment.

The warrants will carry an exercise

price per warrant/share representing 100% of the closing price per share as closed in the equity financing.

This section and

the issue of the warrant by OMNIQ are subject to the approval of the Board of Directors of OMNIQ.

However, if the Board does

not approve the issuance of warrants;

Nissensohn will be entitled to a fee with the equivalent value based on a Black

Scholes valuation

addition to the above, Mr.

Nissenson will be entitled to a $ 50 thousand one-time payment which shall be paid on the

1 st day that the QUEST shares become traded on the NASDAQ or NYSE Stock Market within 24 months of the date of

addition to the aforementioned, in the event that the Company shall close any M&A transaction with a third party target,

Nissenson shall be entitled to a success fee in the amount equal to 3% of the total transaction price, in any combination

of cash and shares that will be determined by QUEST

related party transactions are discussed in Notes 11 and 15.

Nissensohn will be entitled to a $80 thousand one-time payment which shall be paid on the

1 st day that the OMNIQ shares become traded on the NASDAQ or NYSE Stock Market within 24 months of the date of

addition to the aforementioned, in the event that we close any M&A transaction with a third party target, Mr.

shall be entitled to a success fee in the amount equal to 5% of the total transaction price, in any combination of

cash and shares that will be determined by OMNIQ

related party transactions are discussed in Notes 10.

the year ended December 31, 2020, the Company has $5 thousand of current income tax provision (US State & Local and

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Stock options

Net operating

Net operating loss

Total gross deferred tax assets

Valuation Allowance

Net deferred tax assets

Deferred tax liabilities

of intangible assets and depreciation

Amortization of intangible assets and depreciation

Total deferred tax liabilities

3 unchanged sentences

Valuation allowance

Total deferred

Total deferred tax assets

valuation allowance for deferred tax assets as of December 31, 2020 and 2019 was $8.3 million and $5.4 million, respectively.

In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion

or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the

generation of future taxable income in the periods in which those temporary differences become deductible.

Management considers

the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making

this assessment.

Management has recorded a 100% Valuation Allowance, against its Net Deferred Tax Assets, since Management believes

it is more likely than not that it will not be realized at the date of this statement.

The Company will continue to monitor the

potential utilization of this asset.

Should factors and evidence change to aid in this assessment, a potential adjustment to the

valuation allowance in future periods may occur.

The Company records any penalties and interest as a component of operating expenses.

In assessing the recovery of the deferred tax assets, management considers whether it is more likely

than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets

is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible.

Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning

strategies in making this assessment.

Management has recorded a 100% Valuation Allowance, against its Net Deferred Tax Assets,

since Management believes it is more likely than not that it will not be realized at the date of this statement.

The Company will

continue to monitor the potential utilization of this asset.

Should factors and evidence change to aid in this assessment, a potential

adjustment to the valuation allowance in future periods may occur.

The Company records any penalties and interest as a component

of operating expenses.

reconciliation between statutory rate and effective rate is as follows as of December 31, 2020 and 2019:

Federal statutory tax

Federal statutory tax rate

Foreign income taxes

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Return to provision adjustments

Company reported no uncertain tax liability as of December 31, 2019 and expects no significant change to the uncertain tax liability

over the next twelve months.

The Company’s 2014, 2015, 2016, 2017, and 2018 federal and state income tax returns are open

for examination by the applicable governmental authorities.

Effective tax rate

Company reported no uncertain tax liability as of December 31, 2020 and expects no significant change to the uncertain

tax liability over the next twelve months.

The Company’s 2014, 2015, 2016, 2017, and 2018 federal and state income tax returns

are open for examination by the applicable governmental authorities.

of December 31, 2019, the Company had a net operating loss (NOL) carryforward of approximately $22.1 million.

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No other significant events have occurred besides the events disclosed in the Notes to the Financial Statements.

Asset purchase agreement

February 28, 2020, the Company entered in an asset purchase agreement (the “Asset Purchase Agreement”) with EyepaxIT

Consulting LLC, a California limited liability company, (“Eyepax”) and the principal owners of Eyepax (collectively

the “Sellers”), effective September 30, 2019, pursuant to which the Company purchased certain assets from the Sellers

at a cash purchase price of $245,000.

As additional consideration, the Company shall issue to the Sellers 80,000 shares of the

Company’s common stock and an option to purchase 20,000 shares of the Company’s common stock at an exercise price

of $5.00 per share, subject to adjustment, which shall vest quarterly in four (4) equal installments and expire on February 28,

Pursuant to the Asset Purchase Agreement, the Company shall enter into an employment agreement with Mr.

Lalith Caldera,

a principal owner of Eyepax, and pay Mr.

Caldera an annual salary of $100,000.

On January 30, 2020, the World Health Organization

declared the coronavirus outbreak a "Public Health Emergency of International Concern"

and on March 10, 2020, declared

it to be a pandemic.

Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel,

and quarantines in certain areas, and forced closures for certain types of public places and businesses.

The coronavirus and actions

taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of

many countries, including geographical areas in which the Company operates.

The extent of the impact of COVID-19 on

our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak,

impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.

At this point, the extent to

which COVID-19 may impact our financial condition or results of operations is uncertain.

Form of Certificate of Amendment to the Certificate of Incorporation, as amended, dated November 18, 2019 incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed with the SEC on November 18, 2019.

INDEX—we will update the exhibit index

Form of Certificate of Amendment to the Certificate of Incorporation, as amended, dated November 18, 2019 incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 18, 2019.

Amendment to Certificate of Designation of Series C Preferred Stock on June 17, 2016, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2016.

Form of Certificate of Amendment to the Certificate of Incorporation, as amended, of OMNIQ Corp., dated September 30, 2020, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 2, 2020.

$12,492,136.51 Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd.

and their subsidiaries and/or affiliates, jointly and severally, to ScanSource, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 22, 2016.

Description of Securities

of Securities

$483,173.60 CAD Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd.

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Resignation Agreement by and between the Company and Tom Miller dated July 7, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 12, 2017.

Consulting Agreement by and between the Company and Carlos Jaime Nissenson dated August 2, 2017 incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 4, 2017.

Agreement by and between the Company and YES-IF dated September 8, 2017, incorporated by reference to Exhibit 10.1 to the

Company’s Current Report on Form 8-K filed with the SEC on September 8, 2017.

Agreement by and between the Company and Carlos J Nissensohn dated August 2, 2017 incorporated by reference to Exhibit

10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 4, 2017.

Consulting Agreement by and between the Company and YES-IF dated September 8, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2017.

Termination Agreement by and between the Company and Joey Trombino dated September 29, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2017.

2 unchanged sentences

Settlement Agreement dated February 28, 2018 by and between the Company and Kurt Thomet, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2018 .

Settlement Agreement dated February 28, 2018 by and between the Company and George Zicman.

Settlement Agreement dated February 28, 2018 by and between the Company and George Zicman., incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2018.

Voting Agreement dated February 28, 2018 by and between the Company and David and Kathy Marin, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2018.

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Neev Nissenson Employment Agreement, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.

Asset Purchase Agreement, dated February 28, 2020, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 4, 2020.

Shai Lustgarten Employment Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 4, 2020.

Consulting Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on March 4, 2020.

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm

Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.

Asset Purchase Agreement, dated February 28, 2020, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020.

Shai Lustgarten Employment Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020.

Consulting Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020.

Asset Purchase Agreement on February 28, 2020, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020.

Employment Agreement with Shai Lustgarten on September, 2019, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.

Consulting Agreement with Carlos J.

Nissensohn on September, 2019, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019.

2020 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 4, 2020.

of the Registrant

of Independent Registered Public Accounting Firm

Certification

of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification

of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification

of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.

Section 1350)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures