OMNIQ Corp. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________ to__________ Commission File Number: 000-09047 OMNIQ Corp. (Exact name of registrant as specified in its charter) Delaware 20-3454263 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1865 West 2100 South Salt Lake City , UT 84119 (Address of principal executive offices) (Zip Code) (801) 244-9577 (Registrant’s telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Ticker symbol(s) Name of each exchange on which registered N/A N/A N/A Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ (Do not check if a smaller reporting company) Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 7,459,286 shares of common stock, $0.001 par value, as of November 15, 2021. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS F-1 CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2021 AND DECEMBER 31, 2020, (UNAUDITED) F-1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020, (UNAUDITED) F-2 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AT SEPTEMBER 30, 2021 AND DECEMBER 31, 2020, (UNAUDITED) F-3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020, (UNAUDITED) F-4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) F-5 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 4 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 8 ITEM 4. CONTROLS AND PROCEDURES 8 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. 9 ITEM 1A. RISK FACTORS. 9 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 9 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 10 ITEM 4. MINE SAFETY DISCLOSURES. 10 ITEM 5. OTHER INFORMATION. 10 ITEM 6. EXHIBITS. 10 SIGNATURES 11 2 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following: ● risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, material delays and cancellations of projects, supply chain disruptions and other impacts to the business; ● our ability to raise capital when needed and on acceptable terms and conditions; ● our ability to manage credit and debt structures from vendors, debt holders and secured lenders. ● our ability to manage the growth of our business through internal growth and acquisitions; ● competitive pressures; ● general economic conditions, including the overall effect of the current COVID19 Crisis; and ● our ability to attract and retain management, and to integrate and maintain technical information and management information systems. ● compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and ● other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance. For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our Internet website at www.omniq.com. 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OMNIQ CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share data) As of September 30, 2021 December 31, 2020 ( UNAUDITED ) ASSETS Current assets Cash and cash equivalents $ 9,993 $ 4,594 Accounts receivable, net 20,629 9,661 Inventory 6,794 1,507 Prepaid expenses 1,809 670 Other current assets 10 10 Total current assets 39,235 16,442 Property and equipment, net of accumulated depreciation of $ 767 and $ 555 respectively 888 289 Goodwill 16,453 14,695 Trade name, net of accumulated amortization of $ 3,714 and $ 1,156 , respectively 2,570 1,028 Customer relationships, net of accumulated amortization of $ 9,279 and $ 4,885 , respectively 6,450 4,479 Other intangibles, net of accumulated amortization of $ 1,402 and $ 1,104 , respectively 931 1,042 Restricted Cash - 533 Right of use lease asset 3,749 76 Other assets 2,322 74 Total assets $ 72,598 $ 38,658 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 38,619 $ 26,811 Line of credit 5,839 4,914 Accrued payroll and sales tax 2,061 1,717 Notes payable, related parties – current portion 390 433 Notes payable – current portion 5,641 6,449 Lease liability – current portion 1,310 31 Other current liabilities 2,796 1,412 Total current liabilities 56,656 41,767 Long term liabilities Notes payable, related party, less current portion 390 683 Accrued interest and accrued liabilities, related party 63 56 Notes payable, less current portion 2,327 1 Lease liability 2,472 48 Other long-term liabilities 2,057 1,146 Total liabilities 63,965 43,701 Stockholders’ equity (deficit) Series A Preferred stock; $ 0.001 par value; 1,000,000 shares designated, 0 shares issued and outstanding - - Series B Preferred stock; $ 0.001 par value; 1 share designated, 0 shares issued and outstanding - - Series C Preferred stock; $ 0.001 par value; 5,000,000 shares designated, 745,030 shares issued and outstanding, respectively 1 2 Preferred Stock Value Common stock; $ 0.001 par value; 15,000,000 shares authorized; 7,448,597 and 4,684,736 shares issued and outstanding, respectively. 20 5 Additional paid-in capital 70,276 51,842 Accumulated (deficit) ( 67,883 ) ( 56,726 ) Cumulative Translation Adjustment ( 190 ) ( 166 ) Total OmniQ stockholders’ equity (deficit) 2,224 ( 5,043 ) Non-controlling interest 6,409 - TOTAL EQUITY (DEFICIT) 8,633 ( 5,043 ) Total liabilities and equity (deficit) $ 72,598 $ 38,658 The accompanying unaudited notes should be read on conjunction with these unaudited condensed consolidated financial statements. F- 1 OMNIQ CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) For the three months For the nine months ending September 30, ending September 30, (In thousands, except share and per share data) 2021 2020 2021 2020 Revenues Total Revenues $ 20,513 $ 15,833 $ 53,383 $ 42,309 Cost of goods sold Cost of goods sold 15,842 13,024 42,778 33,886 Gross profit 4,671 2,809 10,605 8,423 Operating expenses Research & Development 474 428 1,437 1,260 Selling, general and administrative 6,801 4,808 15,348 11,838 Depreciation 82 44 167 134 Amortization 1,528 550 2,575 1,562 Total operating expenses 8,885 5,830 19,527 14,794 Loss from operations ( 4,214 ) ( 3,021 ) ( 8,922 ) ( 6,371 ) Other income (expenses): Interest expense ( 587 ) ( 744 ) ( 1,890 ) ( 1,957 ) Other (expenses) income ( 159 ) ( 16 ) 2 ( 318 ) Total other expenses ( 746 ) ( 760 ) ( 1,888 ) ( 2,275 ) Net Loss Before Income Taxes ( 4,960 ) ( 3,781 ) ( 10,810 ) ( 8,646 ) Provision for Income Taxes Current ( 117 ) - ( 119 ) - Total Provision for Income Taxes ( 117 ) - ( 119 ) - Net Loss ( 5,076 ) ( 3781 ) ( 10,929 ) ( 8,646 ) Net income attributable to noncontrolling interest 166 - 166 - Net Loss attributable to OmniQ Corp $ ( 5,242 ) $ ( 3,781 ) $ ( 11,095 ) $ ( 8,646 ) Net Loss $ ( 5,076 ) $ ( 3,781 ) $ ( 10,929 ) $ ( 8,646 ) Foreign currency translation adjustment ( 58 ) ( 16 ) ( 24 ) ( 30 ) Comprehensive loss $ ( 5,134 ) $ ( 3,797 ) $ ( 10,953 ) $ ( 8,676 ) Reconciliation of net loss to net loss attributable to common shareholders Net loss $ ( 5,076 ) $ ( 3781 ) $ ( 10,929 ) $ ( 8,646 ) Less: Preferred stock – Series C dividend ( 12 ) ( 32 ) ( 57 ) ( 158 ) Net loss less series C dividend ( 5,064 ) ( 3813 ) ( 10,872 ) ( 8,804 ) Net income after series C dividend attributable to noncontrolling interest 166 - 166 - Net loss after series C dividend attributable to common stockholders’ of OmniQ Corp $ ( 5,230 ) $ ( 3,813 ) $ ( 11,038 ) $ ( 8,804 ) Net (loss) per share - basic attributable to common stockholders’ of OmniQ Corp $ ( 0.73 ) $ ( 0.83 ) $ ( 1.86 ) $ ( 2.03 ) Weighted average number of common shares outstanding - basic 7,224,958 4,588,944 5,971,440 4,339,634 The accompanying unaudited notes should be read in conjunction with these unaudited condensed consolidated financial statements. F- 2 OMNIQ CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED) Series C Additional Non Other Total Stockholders’ Preferred Stock Common Stock Paid-in Shares Accumulated Controlling Comprehensive Equity (In thousands) Shares Amount Shares Amount Capital Repurchased Deficit Interest Income (Loss) (Deficit) Balance, December 31, 2019 4,829 $ 5 3,960 $ 4 $ 46,861 $ - $ ( 45,063 ) $ - $ 1 $ 1,808 Dividend on Class C Shares - - - - - - ( 72 ) - - ( 72 Accumulated other comprehensive loss - - - - - - - - ( 17 ) ( 17 Stock-based compensation – options and warrants - - - - 190 - - - - 190 Subscribed common stock - 440 - - - - 440 Subscribed common stock, shares Professional fees – restricted shares - - 65 - 354 - - - - 354 exercise of stock options and warrants exercise of stock options and warrants, shares Converion agreements - preferred shares Converion agreements - preferred shares, shares Conversion agreements - debt ESPP Stock Issuance ESPP Stock Issuance, shares Stock-based compensation – options, warrants, issuances Stock and warrant issuances, net of issuance costs Stock and warrant issuances, net of issuance costs, shares Stock and Warrant issued for services Stock and Warrant issued for service, shares Stock and warrant issuance for Acquisition Stock and warrant issuance for Acquisition, shares Cumulative Translation Adjustment Other misc. items - - - - - - 14 - - 14 Noncontrolling interests - distributions and other Conversion of Equity Conversion of Equity, shares Conversion of debt Conversion of debt, Shares Post acquisition adjustment Dangot Acquisition Net (loss) - - - - - - ( 2,873 ) - - ( 2,873 Balance, March 31, 2020 4,829 $ 5 4,025 $ 4 $ 47,845 $ - $ ( 47,994 ) $ - $ ( 16 ) $ ( 156 ) Dividend on Class C Shares - - - - - - ( 54 ) - - ( 54 ) Accumulated other comprehensive loss - - - - - - - - 3 3 Stock-based compensation – options and warrants - - - - 105 - - - - 105 Subscribed common stock 80 - - - - - - Professional fees – restricted shares - - 67 - 547 - - - - 547 Exercise of stock options and warrants - - 34 - - - - - - - Conversion agreements - preferred shares ( 2,684 ) ( 3 ) - - 3 - - - - - Conversion agreements - debt - - - - 822 - - - - 822 Net (loss) - - - - - - ( 1,992 ) - - ( 1,992 ) Balance, June 30, 2020 2,145 $ 2 4,206 $ 4 $ 49,322 $ - $ ( 50,040 ) $ - $ ( 13 ) $ ( 725 ) Balance, December 31, 2020 2,145 $ 2 4,685 $ 5 $ 51,842 $ - $ ( 56,726 ) - $ ( 166 ) $ ( 5,043 ) Dividend on Class C Shares - - - - - - ( 31 ) - - ( 31 ) ESPP Stock Issuance - - - - 1 - - - - 1 Stock-based compensation – options, warrants, issuances - - - - 786 - - - - 786 Stock and Warrant issued for services - - 25 - 188 - - - - 188 Exercise of stock options and warrants - - 6 - 2 - - - - 2 Cumulative Translation Adjustment - - - - - - - - 105 105 Other - - - - - - ( 4 ) - - ( 4 ) Conversion of Equity - - - - - - - - - - Net (loss) income - - - - - - ( 3,343 ) - - ( 3,343 ) Balance, March 31, 2021 2,145 $ 2 4,716 $ 5 $ 52,819 $ - $ ( 60,104 ) $ - $ ( 61 ) $ ( 7,339 ) Dividend on Class C Shares - - - - - - ( 14 ) - - ( 14 ) ESPP Stock Issuance - - 1 - 4 - - - - 4 Stock-based compensation – options, warrants, issuances - - - - 786 - - - - 786 Exercise of stock options and warrants - - 240 - 304 - - - - 304 Cumulative Translation Adjustment - - - - - - - - ( 71 ) ( 71 ) Other misc. items - - - - - - - Conversion of Equity ( 1,400 ) ( 1 ) 70 - 1 - - - - - Conversion of debt - - 25 - 203 - - - - 203 Net (loss) income - - - - - - ( 2,510 ) - - ( 2,510 ) Balance, June 30, 2021 745 $ 1 5,052 $ 5 $ 54,117 $ - $ ( 62,628 ) $ - $ ( 132 ) $ ( 8,637 ) Dividend on Class C Shares - - - - - - ( 12 ) - - ( 12 ) ESPP Stock Issuance - - 1 - 9 - - - - 8 Stock-based compensation – options, warrants, issuances - - - - 653 - - - - 653 Stock and warrant issuances, net of issuance costs - - 2,143 15 13,280 - - - - 13,295 Exercise of stock options and warrants - - 33 - 132 - - - - 132 Stock and warrant issuance for Acquisition - - 220 - 2,084 - - 2,084 Dangot Acquisition - - - - - - - 6,508 - 6,508 Post acquisition adjustment - - - - - - ( 1 ) (324 ) - ( 325 ) Cumulative translation adjustment - - - - - - - 59 ( 58 ) 1 Net (loss) income - - - - - - ( 5,242 ) 166 - ( 5,076 ) Balance, September 30, 2021 745 $ 1 7,449 $ 20 $ 70,276 $ - $ ( 67,883 ) $ 6,409 $ ( 190 ) $ 8,633 The accompanying unaudited notes should be read in conjunction with these condensed unaudited consolidated financial statements. F- 3 OMNIQ CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) For the nine months ended September 30, (In thousands) 2021 2020 Cash flows from continuing operating activities: Net loss $ ( 10,929 ) $ ( 8,646 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Stock based compensation 2,620 2,275 Amortization of ROU lease asset 53 40 Depreciation and amortization 3,544 1,696 Changes in operating assets and liabilities: Accounts receivable 2,502 ( 3,193 ) Prepaid expenses ( 1,139 ) ( 116 ) Inventory ( 671 ) 218 Accounts payable and accrued liabilities ( 1,104 ) 9,673 Accrued interest and accrued liabilities, related party 7 ( 26 ) Accrued payroll and sales taxes payable 345 ( 14 ) Other Current assets 428 48 Lease liability 920 ( 39 ) Other liabilities 1,632 ( 420 ) Net cash (used in) provided by operating activities ( 1,792 ) 1,496 Cash flows from investing activities: Payments for acquisition, net of cash acquired ( 4,392 ) - Other assets - 66 Purchase of property and equipment ( 976 ) ( 5 ) Net cash provided by (used in) investing activities ( 5,368 ) 61 Cash flows from financing activities: Proceeds from private placement 13,295 - Proceeds from ESPP stock issuance 14 - Proceeds from / (payments on) line of credit 926 1,870 Net proceeds from Warrant exercise 279 - Net Proceeds from Options Exercise 156 - Proceeds from notes/loans payable 2,172 898 Payment on notes/loans payable ( 4,793 ) ( 874 ) Net cash provided by (used in) financing activities ( 12,049 ) 1,894 Net increase (decrease) in cash 4,889 3,451 Cash and restricted cash, beginning of period 5,127 1,615 Foreign currency Exchange ( 23 ) - Cash and restricted cash, end of period $ 9,993 $ 5,066 Cash paid for interest $ 1,101 $ 77 Cash paid for taxes $ 110 $ - Supplementary for non-cash flow information: Right of use lease asset $ 1,276 $ - Stock issued for services 188 1,971 Net assets acquired in business combination 13,052 - Intangible assets acquired in non-cash exchange - 885 Conversion of notes payable - 281 Stock options and warrants issued 171 304 The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements. F- 4 OMNIQ CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 – NATURE OF OPERATIONS OMNIQ 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 in 1973. Since its incorporation, the Company has been involved in various lines of business. From 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 bases. Our strategy developed into leveraging management’s relationships in the business world for investments for the Company. Since 2014, we have made the following acquisitions resulting in us becoming a leading provider of computerized and machine vision image processing solutions: ● Quest Solution, Inc. (January 2014) ● Bar Code Specialties, Inc. (November 2014) ● ViascanQdata, Inc (October 2015 – later sold in September 2016) ● HTS Image Processing, Inc. (October 2018) ● EyepaxIT Consulting LLC. (February 2021) We 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. Our 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. COVID-19 The outbreak of the COVID-19 pandemic continues to affect the United States of America and the world, including in the primary regions we operate. 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 extent of the ultimate impact of the pandemic on our 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. F- 5 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. During the nine-month period ended September 30, 2021, there were no significant changes to those accounting policies. Principles of Consolidation and Basis of Presentation Our unaudited condensed 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., OmniQ Technologies Ltd., HTS Image Ltd., and HTS Image Processing, Inc., collectively referred to herein as “we” or “us” or “our” or the “Company.” All significant intercompany accounts and transactions have been eliminated in these unaudited condensed consolidated financial statements. Business combinations are included in the unaudited condensed consolidated financial statements from their respective dates of acquisition. We have prepared the interim unaudited condensed consolidated financial statements included herein, in accordance with accounting principles generally accepted in the United States of America, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with our financial statements for the year ended December 31, 2020 and notes thereto included in our Form 10-K filed with the SEC on March 31, 2021. The Company operates in one segment. Operating results for the nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ended December 31, 2021. Use of Estimates We prepare our unaudited condensed 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 unaudited condensed 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 unaudited condensed 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. Goodwill and Intangibles We 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. F- 6 Application 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 in Note 2 in our Annual Report on Form 10-K for the year ended December 31, 2020. Based on this quantitative test, we determined there was no impairment as of the December 31, 2020. Intangible assets with a limited life are being amortized on the straight-line method over useful lives ranging from 3 to 11 years. No events or indicators have occurred subsequent to December 31, 2020 that would affect the intangible assets. No impairment expense was recognized for the nine months ended September 30, 2021. Foreign Currency Translation Our unaudited condensed consolidated financial statements are presented in U.S. dollars. The functional currency for the Company is U.S. dollars. Transactions 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 unaudited condensed consolidated statement of operations and were included in the amount of loss from comprehensive income. Net Loss Per Common Share Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net loss per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS for the nine-months ended September 30, 2021 and 2020 were 5,971,440 and 4,339,634 , 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. The 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 as of: SCHEDULE OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION OF EARNINGS PER SHARE In thousands September 30, 2021 December 31, 2020 Options to purchase common stock 1,654 1,553 Convertible preferred stock - - Warrants to purchase common stock 1,404 75 Potential shares excluded from diluted net loss per share 3,058 1,628 Purchase Accounting and Business Combinations We 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. F- 7 The valuation and allocation processes rely on significant assumptions made by management. In certain situations, the allocations of excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision 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. Revenue Recognition. When 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) : i. Identify the contract with our customer. ii. Identify the performance obligations in the contract. iii. Determine the transaction price. iv. Allocate the transaction price to the performance obligations. And v. Evaluate the satisfaction of the performance obligations, We 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. We 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: i. A good or another asset from another party that we then transfer to our customer. ii. A 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 iii. A 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. We 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 services. Indicators 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: i. We 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. ii. We 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. F- 8 iii. We 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. If 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. As 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. Under 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: i. We have a right to payment for the product or service, ii. The customer has legal title to the product, iii. We have transferred physical possession of the product to the customer, iv. The customer has the risk and rewards of ownership of the product, and v. The customer has accepted the product. Revenue Recognition for Hardware. 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 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 sale. Revenue Recognition for Software. Sales of software licenses are generally considered a single performance obligation. When we are 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. F- 9 As 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: i. If the software provides its original intended functionality to the customer without the updates, ii. If the customer would ascribe a higher value to the upgrades versus the up-front deliverable, iii. If the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and iv. If the customer chooses to not delay or always install upgrades. If 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. 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. 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. Revenue Recognition for Services. 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 transfer those services. Revenues from the sale of professional and support services, provided by us, are recognized over the period the service is provided. As 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. Contract Asset. The Company recognizes revenue as explained in accordance with ASC 606. The Company has entered into contracts with customers that only allow us to invoice the customer once the total project is completed, creating a contract asset which is presented on a separate line item on the balance sheet as a current asset. Freight Costs. 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. The Company considers shipping to be a fulfillment activity and not a separate performance obligation. Stock-Based Compensation We 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. We 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. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We account for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB Accounting Standards Codification (“FASB ASC Section 505-50-30”). Pursuant to FASB ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. F- 10 Recent Accounting Pronouncements We have evaluated the recent pronouncements and believe their adoption will not have a material effect on our financial statements. Reclassifications and Comparability Certain amounts in the financial statements of prior years have been reclassified to conform to the current year presentation for comparative purposes. This had no effect on total assets or net income. NOTE 3 – GOING CONCERN The accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. As of September 30, 2021, we had a working capital deficit of $ 16.6 million and an accumulated deficit of $ 67.9 million. These facts and others have in the past raised concerns 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, which we have successfully accomplished to date. Management has evaluated and assessed the Company’s ability to continue as a going concern. We believe that the achievements of the following positive factors alleviated the substantial doubt about our ability to continue as a going concern (not all inclusive): ● The successful capital raise of $ 15 million. ● The Company’s cash balance at September 30, 2021 of $ 9.99 million. ● The Company’s acquisition of Dangot Computers, Ltd. has improved the balance sheet, profitability and cash flow. ● The Company’s favorable settlement with a major creditor. Reference note 8 supplier note. ● The Company’s up-listing to the NASDAQ stock exchange enhancing the potential to issue additional stock. ● The Company’s historical ability to continue operations and meet cash flow requirements. Management considers these factors in the aggregate and believes that the Company has alleviated the substantial doubt about its ability to continue as a going concern. NOTE 4 – CONCENTRATIONS For the nine-months ended September 30, 2021 and the year ended December 31, 2020, two customers accounted for 26.1 % and 37.2 %, respectively, of the Company’s consolidated revenues. Accounts receivable at September 30, 2021 and December 31, 2020 are made up of trade receivables due from customers in the ordinary course of business. Four customers made up 20.2 % of the accounts receivable balance at September 30, 2021 and one customer represented 46 % of the balance of accounts receivable at December 31, 2020. F- 11 Accounts payable are made up of amounts due to suppliers in the ordinary course of business at September 30, 2021 and December 31, 2020. One vendor made up 71 % and 92.4 % of our accounts payable on September 30, 2021 and December 31, 2020, respectively. NOTE 5 – BUSINESS ACQUISITION In February 2020, OMNIQ entered in an asset purchase agreement with Eyepax IT Consulting LLC, a California limited liability company, (“Eyepax”) and its principal owners (collectively the “Sellers”), pursuant to which we purchased certain assets from the Sellers at a cash purchase price of $ 245 ,000. As additional consideration, the Company issued 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, 2023 . The Company entered into an employment agreement with Mr. Lalith Caldera, a principal owner of Eyepax, agreeing to pay Mr. Caldera an annual salary of $ 100 ,000. On May 3, 2021, the Company and Omniq Technologies Ltd., a wholly owned subsidiary of the Company (“Omniq Technologies”) entered into a share purchase agreement (the “Dangot Share Purchase Agreement”) with Mr. Haim Dangot. Pursuant to the Dangot Share Purchase Agreement, Omniq Technologies agreed to purchase 51 %, or 5,100 shares, of the capital stock of Dangot Computers Ltd., an Israel company (“Dangot”), from Dangot’s sole shareholder, Haim Dangot, for consideration equivalent to 23,740,500 NIS (New Israeli Shekel), which is equal to US$ 7.6 million (the “Closing Consideration”), based on the then current exchange rate at the date of acquisition of NIS to dollars. The Closing Consideration was paid on July 8, 2021 in the following manner: (a) the Company issued 220,103 shares of its common stock having a share value of $ 2,000,000 based on the average of the last 30 trading days prior to signing (May 3 ,2021); and (b) cash in the amount of $ 5,600,000 . Haim Dangot also granted Omniq Technologies an irrevocable option to purchase the remaining 4,900 shares, or 49 %, of Dangot’s capital stock (the “Dangot Option”) in the 12-month period following the closing date (the “Dangot Option Period”) at a share purchase price of 465,500 NIS (US$ 143,142 per each 1 % of Dangot’s remaining shares on a fully diluted basis) which is the same valuation per share as the purchase price for the 51 %. In the event that Omniq Technologies chooses to exercise the Dangot Option, it must do so in whole or by an exercise pursuant to which Omniq Technologies shall purchase at least 26% of the additional Dangot shares on a fully diluted basis (the “Specific Partial Exercise”). Should Omniq Technologies exercise the Specific Partial Exercise, it shall have the right to complete the purchase of the remaining 23% of the Dangot shares on a fully diluted basis in a single exercise until the lapse of the Dangot Option Period. No other partial exercise shall be allowed. The following table summarizes the consideration given and the purchase price allocation: SCHEDULE OF RECOGNIZED FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED Purchase Price Consideration (in thousands) Total Consideration Cash payments $ 5,058 Accrued payable to owner 600 Fair value of stock issued ( 220,103 shares) 2,084 Debt assumed 5,310 Total consideration $ 13,052 Cash $ 666 Accounts Receivable 13,470 Inventory 4,616 Other Assets 5,392 Property and equipment 638 Goodwill 1,758 Trade name 1,893 Customer relationship 3,139 Other intangible assets 899 Assets acquired $ 32,471 Current liabilities assumed ( 12,911 ) Non-controlling interest ( 6,508 ) Net assets acquired $ 13,052 The following proforma unaudited revenue and earnings as if the acquisition had been included in the consolidated results of the company for the full year ending December 31, 2020. SCHEDULE OF PROFORMA UNAUDITED REVENUE AND EARNINGS 2021 2020 September 30, 2021 2020 (in thousands/unaudited) Revenue $ 72,940 $ 66,110 Net income (loss) $ ( 9,233 ) $ ( 7,892 ) Individual pro forma results for each acquisition are not disclosed, as individually these acquisitions would not have a material impact on the Company’s financial statements. F- 12 NOTE 6 – CREDIT FACILITIES AND LINE OF CREDIT We maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us working capital. In 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 $ 6.0 million. Action reserves and withholds up to 5 % of the face amount of each account purchased in a reserve account. As of September 30, 2021 and December 31, 2020, the balance outstanding was $ 5.8 million and $ 4.9 million, respectively. The 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 2.0 %, 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. NOTE 7 – RELATED PARTY NOTES PAYABLE Related party notes payable, consisted of the following as of: SCHEDULE OF NOTES PAYABLE, RELATED PARTIES September 30, 2021 December 31, 2020 In thousands Note payable –Marin $ 480 $ 660 Note payable –Thomet 300 413 Note payable–Shareholder Convertible Note - 43 Total notes payable 780 1,116 Less current portion ( 390 ) ( 433 ) Long-term portion $ 390 $ 683 Note Payable -Marin In 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 September 30, 2021, was $ 63 thousand. Accrued interest is payable at maturity. Note Payable – Thomet In 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. Note Payable – Shareholder Convertible Note In 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, Inc. Mr. Shai Lustgarten, our Chief executive Officer and Director is the principal shareholder in Walefar. Mr. Carlos J. Nissensohn, a consultant and significant shareholder in OMNIQ, is the principal shareholder in Campbeltown. The Shareholder Convertible Note was retired in 2021. Future maturities of related party notes payable as of September 30, 2021, are as follows: SCHEDULE OF FUTURE MATURITIES OF NOTES PAYABLE, RELATED PARTIES In thousands 2021 97 2022 390 2023 293 2024 - Thereafter - Total $ 780 F- 13 NOTE 8 – OTHER NOTES PAYABLE Other notes payable at September 30, 2021 and December 31, 2020, consists of the following: SCHEDULE OF OTHER NOTES PAYABLE (In thousands) September 30, 2021 December 31, 2020 Note Payable- Supplier $ 2,843 $ 6,443 All Other 5,125 7 Total 7,968 6,450 Less current portion ( 5,641 ) ( 6,449 ) Long Term Notes Payable $ 2,327 $ 1 Note Payable - Supplier On July 18, 2016, the Company and the Supplier entered into a certain secured promissory note, with an effective date of July 1, 2016, in the principal amount of $ 12.5 million (the “Secured Promissory Note”). The USD Note accrues interest at 18 % 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. ● On September 7, 2018, the Company entered into a Sixth Amendment to the Secured Promissory Note (the “Sixth Amendment”) extending the maturity date to January 31, 2019. The Sixth Amendment also increases the principal amount to $ 8.7 million, an increase of $ 6.8 million, by rolling the Company’s then existing and outstanding accounts payable into the note by the previously mentioned amount of increase. The Company will continue to make monthly payments in the amount of $ 300 thousand for the first three monthly payments, and also in the amount of $ 500 thousand for the last two monthly payments prior to the note’s maturity. ● On April 30, 2019, the Company entered into a Seventh Amendment to the Secured Promissory Note (the “Seventh Amendment”) extending the maturity date to July 31, 2019. The Seventh 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. ● On July 20, 2021, the Company entered into the Eighth Amendment to the Secured Promissory Note (the “Eighth Amendment”) extending the maturity date to August 15, 2022 and reducing the interest rate from 18 % to 10 %. The Eighth Amendment also provides that the Company will continue to make monthly installments of principal and accrued interest at a minimum of $ 300 thousand each month. 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. F- 14 NOTE 9 – OTHER LIABILITIES At September 30, 2021 and December 31, 2020, other liabilities consisted of the following: SCHEDULE OF OTHER LIABILITIES (In thousands) September 30, 2021 December 31, 2020 Other vendor payable $ 801 $ 801 Dividend payable 1,164 253 Bonus payable - 27 Others 2,888 1,477 Total other liabilities 4,853 2,558 Less Current Portion ( 2,796 ) ( 1,412 ) Total long term other liabilities $ 2,057 $ 1,146 NOTE 10 – STOCKHOLDERS’ EQUITY PREFERRED STOCK Series A As of September 30, 2021, there were 1,000,000 Series A preferred shares designated and no Series A preferred shares outstanding. The board of directors of the Company (the “Board”) had previously set the voting rights for the Series A preferred stock at 1 share of preferred to 250 common shares. Series B As of September 30, 2021, there was 1 preferred share designated and no preferred shares outstanding. Series C As of September 30, 2021, there were 3,000,000 Series C Preferred Shares (“Series C”) authorized with 745,030 issued and outstanding. 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 September 30, 2021, the accrued dividends on the Series C Preferred Stock was $ 106 thousand. 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. COMMON STOCK In August 2020, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain existing employees and attract new employees, directors, officers, consultants, and advisors to the Company. Pursuant 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. As of September 30, 2021, we had issued 361,146 shares or $ 1.8 million to consultants and advisors for services rendered. In December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the nine months ending September 30, 2021 employees purchased 1,376 or $ 14 thousand shares of commons stock. On February 15, 2021 the Company issued 25,000 shares to Orion 4, LLC as part of a consulting agreement. The shares were valued at $ 188 thousand. For the nine months ending September 30, 2021, 342,667 in stock options and stock warrants were exercised in exchange for 2,784,096 shares of OMNIQ common stock. On July 8, 2021, the Company entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with accredited investors. Pursuant to the Securities Purchase Agreement, on July 8, 2021 (the Closing Date”), the Company sold an aggregate gross proceeds of $ 15 million of units (the “Units”) before deducting placement agent fees, consultant and legal fees and other offering expenses (the “Offering”). The per Unit purchase price was $ 7.00 . Each Unit is comprised of one share of the Company’s common stock, $ 0.001 par value per share. As a result of the Offering, the Company issued 2,142,857 shares of common Stock (the “Shares”) and warrants (the “Warrants”) to purchase 171,429 shares of Common Stock (the “Warrant Shares”) at an exercise price equal to $ 7.70 per Warrant Share, which Warrants are exercisable for a period of five years from the issuance date. ThinkEquity, a division of Fordham Financial Management, Inc. (the “Placement Agent”), acted as the sole placement agent for the Offering. In connection with the Offering, the Company entered into a Placement Agency Agreement with the Placement Agent, pursuant to which it paid the Placement Agent $ 1.2 million (eight percent of the gross proceeds) in commissions and reimbursed it for $ 150 thousand of expenses incurred in connection with the Offering plus other miscellaneous expenses. The Company also issued the Placement Agent a warrant (the “Placement Agent Warrant”) to purchase 171,429 shares of the Company’s common stock (the “Placement Agent Warrant Shares”) at an exercise price of $ 7.70 per share. The Placement Agent Warrant terminates five years from the Closing Date. The Company paid additional legal and other fees directly related to the Offering. The cash fees paid were netted against the Offering proceeds, as follows: SCHEDULE OF ADDITIONAL LEGAL AND OTHER FEES RELATED TO OFFERING (In thousands) Total proceeds from issuance of Common Stock and Warrants $ 15,000 Placement Agent fees ( 1,455 ) Commission, Legal and other fees ( 264 ) Total $ 13,281 The fair value of the Warrants issued to the Placement Agent and Consultant are included in the Warrants Paid in Capital account in stockholder’s equity. F- 15 Warrants The following table summarizes information about warrants granted during the nine-month periods ended September 30, 2021 and 2020: SCHEDULE OF WARRANTS ACTIVITY September 30, 2021 September 30, 2020 Number of warrants Weighted Average Exercise Price Number of warrants Weighted Average Exercise Price Balance, beginning of period 1,366,667 $ 7.19 1,166,667 $ 6.42 Warrants granted 171,429 325,000 8.20 Warrants expired ( 15,000 ) 14.00 ( 10,000 ) 5.60 Warrants cancelled, forfeited - - - - Warrants exercised ( 119,167 ) 3.98 ( 150,000 ) 4.00 Balance, end of period 1,403,929 $ 7.45 1,331,667 $ 7.14 Exercisable warrants 1,320,596 $ 7.45 1,165,001 $ 7.08 Outstanding warrants as of September 30, 2021 are as follows: SCHEDULE OF OUTSTANDING WARRANTS Weighted Average Weighted Weighted Range of residual life Average Average Exercise span Outstanding Exercise Exercisable Exercise Prices (in years) Warrants Price Warrants Price 7.00 3.27 847,500 7.00 847,500 7.00 7.50 4.93 250,000 7.50 166,667 7.50 7.70 4.77 171,429 7.70 171,429 7.70 8.00 0.41 10,000 8.00 10,000 8.00 10.00 1.23 125,000 10.00 125,000 10.00 7.00 to 10.00 3.42 1,403,929 $ 7.45 1,320,596 $ 7.45 Warrants outstanding at September 30, 2021 and 2020 have the following expiry date and exercise prices: SCHEDULE OF WARRANTS OUTSTANDING, EXPIRY DATE AND EXERCISE PRICES Exercise Expiry Date Prices 2021 2020 October 10, 2020 12.00 - 15,000 December 30, 2020 4.00 - - February 02, 2021 14.00 - 15,000 August 02, 2021 2.20 - 75,000 October 10, 2021 10.00 25,000 25,000 February 27, 2022 8.00 10,000 10,000 May 18, 2023 10.00 50,000 50,000 October 14, 2023 10.00 50,000 - October 06, 2024 7.00 793,667 891,667 September 01, 2025 7.50 83,334 83,334 June 04, 2026 7.50 83,333 83,333 July 8, 2026 7.70 171429 - December 04, 2027 7.50 83,333 83,333 1,403,929 1,231,667 F- 16 Stock Options The following table summarizes information about stock options granted during the nine months ended September 30, 2021 and 2020: SCHEDULE OF STOCK OPTIONS GRANTED September 30, 2021 September 30, 2020 Number of stock options Weighted Average Exercise Price Number of stock options Weighted Average Exercise Price Balance, beginning of period 1,811,550 $ 4.32 1,133,550 $ 4.00 Stock options granted - 775,000 4.63 Stock options expired - ( 30,250 ) 3.98 Stock options cancelled, forfeited ( 28,750 ) - Stock options exercised ( 223,500 ) ( 66,750 ) 2.51 Balance, end of period 1,559,300 $ 4.58 1,811,550 $ 4.32 Exercisable stock options 1,070,133 $ 4.56 959,550 $ 4.02 On September 30, 2020, the Company granted 775,000 stock options. These options were granted as part of the asset acquisition described in Note 4, and to a member of the board of advisors, and to certain employees as part of the Company’s Equity Incentive Plan. Outstanding stock options as of September 30, 2021 are as follows: SCHEDULE OF OUTSTANDING STOCK OPTIONS Range of Exercise Prices Weighted Average residual life span (in years) Outstanding Stock Options Weighted Average Exercise Price Exercisable Stock Options Weighted Average Exercise Price $ 1.50 0.38 38,017 $ 1.50 38,017 $ 1.50 $ 1.80 0.38 76,033 $ 1.80 76,033 $ 1.80 $ $ 2.40 1.43 247,000 $ 2.40 247,000 $ 2.40 $ 4.20 3.55 10,000 $ 4.20 7,500 $ 4.20 $ 4.40 8.24 404,000 $ 4.40 170,667 $ 4.40 $ 4.84 9.00 380,000 $ 4.84 126,667 $ 4.84 $ 5.00 1.77 147,500 $ 5.00 142,500 $ 5.00 $ 5.40 2.17 131,750 $ 5.40 131,750 $ 5.40 $ 10.00 3.14 125,000 $ 10.00 125,000 $ 10.00 $ 1.50 to 10.00 5.16 1,564,300 $ 4.58 1,032,116 $ 4.73 Stock options outstanding at September 30, 2021, and 2020 have the following expiration date and exercise prices: SCHEDULE OF STOCK OPTIONS, EXPIRY DATE AND EXERCISE PRICES Expiration Date Exercise Prices September 30, 2021 September 30, 2020 August 2, 2021 $ 2.20 - 175,000 February 17, 2022 $ 1.50 38,017 38,017 February 17, 2022 $ 1.80 76,033 76,033 February 28, 2023 $ 5.00 20,000 - March 5, 2023 $ 2.40 247,000 340,000 July 31, 2023 $ 5.00 127,500 127,500 October 31, 2023 $ 4.40 59,000 108,250 November 30, 2023 $ 5.40 131,750 143,750 November 20, 2024 $ 10.00 125,000 125,000 April 20, 2025 $ 4.20 10,000 - September 30, 2030 $ 4.40 350,000 - September 30, 2030 $ 4.84 380,000 - 1,564,300 1,073,300 F- 17 NOTE 11 – COMMITMENTS AND CONTINGENCIES Profit Sharing Plan We 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, 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 nine months ending September 30, 2021, we elected to forgo the match. Operating Leases As of September 30, 2021, we had 8 operating leases as follows: ● Office space in Akron, Ohio, with monthly payments of $ 3 thousand and an incremental borrowing rate of 14.55 %. As of September 30, 2021, we had 20 months remaining on the lease. ● A vehicle with monthly payments of less than $ 1 thousand. As of September 30, 2021, the Company had 5 months remaining on the lease. ● Office space in Salt Lake City, UT, with monthly payments of $ 22 thousand. As of September 30, 2021 the company had 58 months remaining on the lease. ● Yad haruzim -Dangot main office in Tel-Aviv . with monthly payments of between 62500 NIS to 65365 NIS . As of September 30, 2021, we had 38 months remaining on the lease. ● Gamdan office in Tel-Aviv. with monthly payments of between 21,080 NIS to 22,134 NIS . As of September 30, 2021, we had 27 months remaining on the lease. ● Rival warehouse in Tel Aviv. . with monthly payments of between 40,000 NIS to 41,200 NIS. As of September 30, 2021, we had 45 months remaining on the lease. ● Hofman warehouse in Tel Aviv. . with monthly payments of between 3,500 NIS. As of September 30, 2021, we had 33 months remaining on the lease. ● Rental cars - Variable payments, between NIS 2,000 and NIS 6,000 for about 65 employees with 36 payments. NOTE 12 – LITIGATION In September 2020 the Company was named as a defendant in a Mississippi state lawsuit (the “Mississippi case”) filed by Riverland Technologies LLC (“Riverland”) in the Circuit Court of Rankin County, Mississippi. The subject matter of the Mississippi case directly relates to the RedLPR case, to which Riverland was also a party. Subject to a settlement between the Company and Riverland, all of Riverland’s claims against the Company in the Mississippi case have been dismissed, and the Company is no longer a party to the Mississippi case. The Company was named a defendant in a case involving a former employee who claims he is owed approximately $ 60 thousand in unpaid commissions. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020. The Company believes the claim is without merit and intends to defend itself against said claim. 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 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. NOTE 13 – RELATED PARTY TRANSACTIONS Related party transactions are discussed in Note 7. NOTE 14 – SUBSEQUENT EVENTS The Company assessed potential subsequent events and there were none as of the filing date. F- 18 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance. For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our Internet website at www.omniq.com. Introduction We 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. 4 Our 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. The following is a discussion of our financial condition, results of operations, financial resources, and working capital. This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements contained in this Form 10-Q. OVERVIEW The Company’s sales from continuing operations for the nine months ended September 30, 2021 were $53.4 million, an increase of approximately $11.1 million, or 26.2%, over the nine months ended September 30, 2020. The loss from continuing operations for the nine months ended September 30, 2021 was $8.9 million, an increase of $2.5 million compared with the loss in the nine months ended September 30, 2020 of $6.4 million. Basic loss per share from continuing operations for the nine months ended September 30, 2021 was ($1.80) versus ($0.04) per share for the same time period in 2020. SUBSEQUENT EVENT GOING CONCERN The accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. As of September 30, 2021, we had a working capital deficit of $16.6 million and an accumulated deficit of $67.9 million. These facts and others have in the past raised concerns 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, which we have successfully accomplished to date. Management has evaluated and assessed the Company’s ability to continue as a going concern. We believe that the achievements of the following positive factors alleviated the substantial doubt about our ability to continue as a going concern (not all inclusive): ● The successful capital raise of $15 million. ● The Company’s cash balance at September 30, 2021 of $9.99 million. ● The Company’s acquisition of Dangot Computers, Ltd. has improved the balance sheet, profitability and cash flow. ● The Company’s favorable settlement with a major creditor. Reference note 8 supplier note. ● The Company’s up-listing to the NASDAQ stock exchange enhancing the potential to issue additional stock. ● The Company’s historical ability to continue operations and meet cash flow requirements. Management considers these factors in the aggregate and believes that the Company has alleviated the substantial doubt as its ability to continue as a going concern. Results of Operations The following tables set forth certain selected unaudited condensed consolidated statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance. 5 (In thousands, except per share data) Three months ended September 30, Variation 2021 2020 $ % Revenue $ 20,513 $ 15,833 4,680 29.6 % Cost of Goods sold 15,842 13,024 2,815 21.6 % Gross Profit 4,671 2,809 1,862 66.3 % Operating Expenses 6,801 5,830 971 16.7 % Income (loss) from operations (2,130 ) (3,021 ) 891 (29.5 )% Net loss from continuing operations (4,214 ) (3,781 ) (433 ) 11.5 % Net Loss per common Share $ (0.68 ) $ (0.83 ) 0.15 (17.9 )% Revenues For the three months ended September 30, 2021 and 2020, the Company generated net revenues in the amount of $20.5 million and $15.8 million, respectively. The increase between the three-month periods was attributable to the additional sales channel’s provided by the acquisition of Dangot. Cost of Goods Sold For the three months ended September 30, 2021 and 2020, the Company recognized a total of $15.8 million and $13 million, respectively, of cost of goods sold. For the three months ended September 30, 2021 and 2020, cost of goods sold were 77.2% and 82.2% of net revenues, respectively. The 2021 decrease in cost of goods sold as a percentage of net revenue was attributable to discounts being granted during the Covid pandemic which are no longer being offered. Operating expenses Total operating expense for the three months ended September 30, 2021 and 2020 recognized was $6.8 million and $5.8 million, respectively, representing an 16.7% increase. The increases are related to the additional operations from Dangot. Research and Development – Research and development expenses for the three months ended September 30, 2021 and 2020 totaled $474 thousand and $428 thousand, respectively, representing a 10.7% increase. The increases are primarily attributed to expanding our range of solutions offered and development of the AI proprietary products. Selling, general and Administrative – Selling, general and administrative expenses for the three months ended September 30, 2021 and 2020 totaled $6.8 million and $4.8 million, respectively, representing a 41% increase. The increase was due primarily to increased number of employees and operating activities from the acquisition of Dangot. Depreciation – Depreciation expenses for the three months ended September 30, 2021 and 2020 totaled $82 thousand and $44 thousand, respectively, representing an 86.3% increase. The increase is directly increased by the acquisition of additional fixed assets. Intangible amortization – Intangible amortization expenses for the three months ended September 30, 2021 and 2020 totaled $1.5 million and $550 thousand, respectively. The increase is directly increased by the acquisition of additional intangible assets and the amortization of the acquired workforce. Other income and expenses Interest Expense - Interest expense for the three months ended September 30, 2021 totaled $587 thousand, as compared to $744 thousand for the three months ended September 30, 2020. The decrease is primarily attributable to renegotiated terms with lenders and vendors. 6 (In thousands, except per share data) Nine months ended September 30, Variation 2021 2020 $ % Revenue $ 53,383 $ 42,309 11,074 26.2 % Cost of Goods sold 42,778 33,886 8,889 26.2 % Gross Profit 10,605 8,423 2,182 25.9 % Operating Expenses 15,348 14,794 554 3.7 % Income (loss) from operations (4,743 ) (6,371 ) 1,628 (25.6 )% Net loss from continuing operations (8,921 ) (8,646 ) (275 ) 3.2 % Net Loss per common Share $ (1.47 ) $ (2.03 ) 0.56 (27.7 )% Revenues For the nine months ended September 30, 2021 and 2020, the Company generated net revenues in the amount of $53.4 million and $42.3 million, respectively. The increase between the nine-month periods was attributable to stronger fulfillment and deliveries by the Company and demand by certain customers in connection with the COVID-19 pandemic and the additional sales channel’s provided by the acquisition of Dangot. Cost of Goods Sold For the nine months ended September 30, 2021 and 2020, the Company recognized a total of $42.8 million and $33.9 million, respectively, of cost of goods sold. For the nine months ended September 30, 2021 and 2020, cost of goods sold were 80.13% and 80.09% of net revenues, respectively. Operating expenses Total operating expense for the nine months ended September 30, 2021 and 2020 recognized was $19.5 million and $14.8 million, respectively, representing an 32% increase. Research and Development – Research and development expenses for the nine months ended September 30, 2021 and 2020 totaled $1.4 million and $1.3 million, respectively, representing a 14% increase. Selling, general and Administrative – Selling, general and administrative expenses for the nine months ended September 30, 2021 and 2020 totaled $15 million and $11.8 million, respectively, representing a 29.7% increase. The increase was due primarily number of employees and operating activities from the acquisition of Dangot. Depreciation – Depreciation expenses for the nine months ended September 30, 2021 and 2020 totaled $167 thousand and $134 thousand, respectively, representing an 24.6% decrease. The increase is directly increased by the acquisition of additional fixed assets. Intangible amortization – Intangible amortization expenses for the nine months ended September 30, 2021 and 2020 totaled $2.6 million and $1.6 million, respectively. Other income and expenses Interest Expense - Interest expense for the nine months ended September 30, 2021 totaled $1.9 million, as compared to $2 million for the nine months ended September 30, 2020. 7 Net loss from operations The Company realized a net loss from continuing operations of $8.9 million for the nine months ended September 30, 2021, compared to a net loss of $8.6 million for the nine months ended September 30, 2020, an increase of $300 thousand. The decrease in net loss between the nine-month periods is mainly attributable to the Company’s acquisition of Dangot. Liquidity and capital resources As of September 30, 2021, the Company had cash in the amount of $10 million of which $75 thousand is on deposit and a working capital deficit of $16.9 million, compared to cash in the amount of $5.1 million, of which $.5 million was restricted, and a working capital deficit of $25.3 million as of December 31, 2020. In addition, the Company had a stockholders’ deficit of $10.7 million as of September 30, 2021 and stockholders’ deficit of $5 million as of December 31, 2020. The Company’s accumulated deficit was $67.9 million and $56.7 million on September 30, 2021, and December 31, 2020, respectively. The Company’s operations resulted in net cash used of $1.7 million during the nine months ended September 30, 2021, compared to net cash provided of $1.5 million during the nine months ended September 30, 2020, a decrease of $1.2 million. Net cash used in investing activities was $5.4 million for the nine months ended September 30, 2021, compared to net cash provided of $61 thousand for the nine months ended September 30, 2020, an increase of $5.5 million. The Company’s financing activities provided net cash of $12 million during the nine months ended September 30, 2021, compared to net cash provided of $1.9 million during the nine months ended September 30, 2020. Inflation The Company’s results of operations have not been affected by inflation and management does not expect inflation to have a material impact on its operations in the future. Off- Balance Sheet Arrangements The Company currently does not have any off-balance sheet arrangements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Company’s management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e)) as of September 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. 8 Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer (Principal Financial and Accounting Officer) concluded that, as of September 30, 2021, our disclosure controls and procedures were ineffective as of the end of the period covered to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure. This was due to the following material weaknesses which are indicative of many small companies with limited staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of accounting principles generally accepted in the United States of America and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer, and our Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure. During 2020, we identified material weaknesses in our internal control over financial reporting, which were disclosed in our annual report on Form 10-K filed with the SEC on March 31, 2021. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In September 2020 the Company was named as a defendant in a Mississippi state lawsuit (the “Mississippi case”) filed by Riverland Technologies LLC (“Riverland”) in the Circuit Court of Rankin County, Mississippi. The subject matter of the Mississippi case directly relates to the RedLPR case, to which Riverland was also a party. Subject to a settlement between the Company and Riverland, all of Riverland’s claims against the Company in the Mississippi case have been dismissed, and the Company is no longer a party to the Mississippi case. The Company was named a defendant in a case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020. The Company believes the claim is without merit and intends to defend itself against said claim. 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 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. ITEM 1A. RISK FACTORS Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. 9 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ITEM 5. OTHER INFORMATION. None. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission this Form 10-Q, including exhibits. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at SEC’s Public Reference Room located at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You 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. Our filings, including the registration statement, will also be available to you on the website maintained by the Commission at http://www.sec.gov. We intend to furnish our stockholders with annual reports which will be filed electronically with the SEC containing consolidated financial statements audited by our independent auditors, and to make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial statements. Our 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, is not part of or incorporated by reference into this filing. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 15, 2021 OMNIQ CORP. By: /s/ Shai Lustgarten Shai Lustgarten President and Chief Executive Officer 11 EXHIBIT INDEX 10.1 Share purchase Agreement dated May 3, 2021, by and between OMNIQ Corp, OMNIQ Technologies Ltd. and Haim dangot. (incorporated by reference to the Current Report on Form 8-k filed with the SEC on May 6, 2021) 10.2 Conversion Agreement dated May 3, 2021 by and between OMNIQ Corp. and Jason Griffith (incorporated by reference to the current Report on Form 8-k filed with the SEC on May 6, 2021) 31.1 Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 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) 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). 12