What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-31 · 94 added, 223 removed, 266 unchanged (54% of the section changed)

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of this Annual Report on Form 10-K.

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

Many State Governors issued temporary Executive Orders in 2020, which continue to remain effective in many states that, among

other stipulations, effectively limit in-person work activities for most industries and businesses having the effect of suspending or

severely curtailing operations.

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

To date, we have not incurred any significant

interruptions to our day-to-day operations or supply chain, except some of our employees have or are working remotely.

In response to

the COVID-19 pandemic, we proactively implemented certain measures to strengthen cash flow, manage costs, strengthen liquidity and enhance

employee safety.

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

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

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

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

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

Our total revenues

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

COVID-19 had a more significant

impact on our gross margin.

Total gross margin percentage dropped 5% for the year ended December 31, 2020 compared to 2019.

and the extent of any continued recovery, or subsequent contraction, in our sales volumes cannot be reasonably estimated at this time.

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

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

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

of which cannot be reasonably predicted at this time.

Company’s consolidated revenue for the year ended December 31, 2021 were $78.3 million, representing an increase of $23.1

million from the year ended December 31, 2020 of $55.2 million.

Revenues in 2021 and 2020 are presented in accordance with Accounting

Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606).

loss attributable to common stockholders’ of OmniQ Corp was $13.4 million in 2021, an increase of $1.9 million

from the 2020 loss of $11.5 million.

Basic loss per share attributable to common stockholders was $2.20 for the year 2021

compared to $2.49 per share for the year 2020.

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.

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 $7.7 million (the “Closing Consideration”), based on the exchange rate

at the date of acquisition of NIS to dollars.

Company’s consolidated revenue for the year ended December 31, 2022 were $102.5 million, representing an increase of $24 million

from the year ended December 31, 2021 of $78.3 million.

Revenues in 2022 and 2021 are presented in accordance with Accounting Standards

Codification Topic 606, Revenue from Contracts with Customers (Topic 606).

loss attributable to common stockholders’ of OmniQ Corp was $13.8 million in 2022, an increase of $400 thousand from the 2021 loss

of $13.4 million.

Basic loss per share attributable to common stockholders was $1.82 for the year 2022 compared to $2.20 per share for

the year 2021.

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.

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 $7.7 million (the “Closing Consideration”), based on the exchange rate at the date

of acquisition of NIS to dollars.

Closing Consideration was paid on July 8, 2021 in the following manner:

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a share value of $2,084 thousand and (b) cash in the amount of $5,058 thousand and $600 thousand payable to owner.

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 489,500 NIS (US $150,522 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%.

Effective October 1, 2021 the Company exercised

a portion of its option and purchased an additional 26% of Dangot bringing its ownership to 77%.

The Company paid $4,012,000 to purchase

the additional shares.

OmniQ Technologies has 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.

February 2020, OMNIQ entered in an asset purchase agreement with EyepaxIT Consulting LLC, a California limited liability company, (“Eyepax”)

and its principal owners (collectively the “Sellers”), effective September 30, 2019, pursuant to which the Company purchased

certain assets from the Sellers at a cash purchase price of $245,000.

As additional consideration, the Company 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,

The Company entered into an employment agreement with Mr.

Lalith Caldera, a principal owner of Eyepax, agreeing to pay Mr.

an annual salary of $100,000.

August 2020, OMNIQ adopted an Equity Incentive Plan (the “2020 Plan”), as an incentive to retain in the employ of

and attract new employees, directors, officers, consultants, advisors and employees to the Company.

Pursuant to the 2020 Plan,

one million (1,000,000) shares of the Company’s common stock, par value $0.001 (the “Shares”), were set aside and reserved

for issuance.

The 2020 Plan was approved by the Company’s stockholders in September 2020.

September 2020 and pursuant to the 2020 Equity Incentive Plan, the Company granted options to purchase an aggregate of 745,000

shares of the Company’s common stock to certain of its employees, officers and directors, including options to purchase 230,000

shares of its common stock to Mr.

Shai Lustgarten, the Company’s Chief Executive Officer, options to purchase 40,000 shares of

its common stock to Mr.

Neev Nissenson, its Chief Financial Officer, options to purchase 150,000 shares of its common stock to Mr.

Nissensohn, a consultant and principal stockholder, and options to purchase 10,000 shares of its common stock to Company Directors

Andy MacMillan and Yaron Shalem, respectively.

The exercise price of all of the options granted was $4.40 per share, which was the closing

price of the Company’s common stock on September 29, 2020, the day prior to the grant, except for the options granted to Shai Lustgarten

and Carlos J.

Nissensohn, which have an exercise price of $4.84 per share.

The options granted to Shai Lustgarten and Carlos J.

have a term of five (5) years and the balance of the options have a term of ten (10) years.

September 2020, the Company filed an amendment to its Certificate of Incorporation, as amended (the “Amendment”), with the

Secretary of State of Delaware, pursuant to which the Company reduced the amount of its authorized common stock to 15,000,000 and reduced

the amount of its authorized preferred stock to 5,000,000, of which 3,000,000 shares shall be designated as Series C Preferred Stock.

In October 2021, OMNIQ adopted an Equity Incentive

Plan (the “2021 Plan”), as an incentive to retain in the employ of and attract new employees, directors, officers, consultants,

advisors and employees to the Company.

Pursuant to the 2021 Plan, 1,118,856 shares of the Company’s common stock, par value $0.001

(the “Shares”), were set aside and reserved for issuance.

The 2021 Plan was approved by the Company’s stockholders

in December 2021.

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

The following are the principal conditions or events which potentially raise substantial doubt about the company’s ability to continue

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 489,500 NIS (US $150,522 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%.

Effective October 1, 2021 the Company exercised a portion of its option

and purchased an additional 26% of Dangot bringing its ownership to 77%.

The Company paid $4,012,000 to purchase the additional shares.

On April 1, 2022, the Company closed on its acquisition of Dangot and exercised the remaining portion of its option to purchase 23.0%

of the capital stock, thereby making Dangot a fully owned subsidiary of the Company.

The Company paid $3,518,000 to purchase the additional

The Company utilized its working capital and a combination of short and long term loans.

following are the principal conditions or events which potentially raise substantial doubt about the company’s ability to continue

as a going concern:

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years of negative cash flows from operations

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.

following conditions, plans and actions are currently being implemented by management to address the Company’s conditions:

Company has common stock which is now traded publicly on the NASDAQ stock exchange.

Accordingly, it is better able to successfully

raise capital when needed.

In addition, there are outstanding warrants from prior offerings that could be exercised depending upon

the performance of our stock.

Company raised gross proceeds of $15 million from a private placement of its common stock in July 2021.

Company’s acquisition of Dangot Computers, Ltd.

has improved the balance sheet, profitability, and cash flow, including positive

cash flows from operations of $570 thousand since the acquisition, and is expected to help the Company as a whole to generate positive

cash flows from operations for the foreseeable future.

Company expects to receive financing for the acquisition of the last 23% of shares of Dangot at a loan to value rate of 85%.

company also expects that Dangot’s cashflow will be able to service the debts associated with its acquisition without the need

for cash from the rest of the group.

acquisition of Dangot has added capabilities to the Company which have already transformed into significant new orders (so far approx.

$1.3M) in the Parking segment.

Noncompliance with certain debt covenants

Management considers the condition outlined above

as the most significant factors in raising substantial doubt about the Company’s ability to continue as a going concern within one

year after the date the financial statements are issued.

Management’s Plans to Mitigate and Alleviate

Conditions or Events

The following conditions, plans and actions are currently

being implemented to address the Company’s conditions:

Outstanding warrants exist from prior offerings that could be exercised for cash depending upon the performance of our stock.

The Company’s acquisition of Dangot Computers, Ltd.

has improved the balance sheet, profitability, and cash flow and is expected to help the Company as a whole to generate positive cash flows from operations for the foreseeable future.

The Company received financing for the acquisition of the last 23% of shares of Dangot on March 30, 2022 (The company owns 100% of Dangot).

The Company also expects that Dangot’s cashflow will be able to service the debts associated with its acquisition without the need for cash from the rest of the group.

The acquisition of Dangot has added capabilities to the Company which have already transformed into significant new orders in the Parking segment.

Management expects the collaboration and cross sales to contribute to improved revenues and margins.

is evaluating operating expenses and is developing a plan to reduce expenditures without negatively impacting current operations.

is in the final steps of receiving a $8.5M line of credit from Western Alliance Bank.

This line of credit will replace the high interest

Action Capital line of Credit ($6M) and settle the ScanSource debt $2.5M.

Overall the effective interest rate of the new line of

credit is approx.

7% compared to 12% with Action and 10% with ScanSource.

of December 31, 2021, the Company had approximately $7 million, in cash, which is sufficient cash to last 15 months at the current

According to our sensitivity analysis the Company would have to miss it’s projection by over 17% to be at risk at

the end of March 2023.

results - For over ten years, the Company’s audit opinion has contained an explanatory paragraph describing an uncertainty

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

The fact that the Company has a ten plus year plus history of continuing

operations, in and of itself, demonstrates an ability to continue for a period of 12 months, post-issuance of each report.

Star - The Company’s total accounts payable due to Blue Star as of December 31, 2021 was approximately $29M.

Blue Star is an

unsecured creditor, financing a substantial amount the Company’s supply chain demand.

Blue Star continues selling to the Company

with preferable credit terms.

Blue Star has agreed to reduce the annual interest rate on invoices that are past due to just 5%.

anticipate, consistent with prior periods, Blue Star will continue to extend us such preferable payments terms in the foreseeable

Management is evaluating operating expenses and is developing a plan to reduce expenditures without negatively impacting current operations.

Management has already cut staff by about 5% and will continue to do additional overhead cuts.

March 25, 2022 management finalized an $8.5M line of credit from Western Alliance Bank.

This line of credit replaced the high interest Action Capital line of Credit ($6M) and settle the ScanSource debt $2.5M.

Blue Star - The Company’s total accounts payable due to Blue Star as of December 31, 2022 was approximately $36 million.

Blue Star is an unsecured creditor, financing a substantial amount the Company’s supply chain demand.

Management believes that Blue Star will continue supplying the Company with preferable credit terms.

Blue Star has agreed to the annual interest rate of 5% on invoices that are past due.

As an unsecured creditor of the Company, Blue Star has no incentive to force a liquidation.

The Company has enjoyed a good

mutual relationship for the past four years.

in 2022 the Company expects positive cash flow from operations.

believes that the aggregate impact of these plans is to mitigate the conditions raising substantial doubt about the Company’s ability

to continue as a going concern within one year after the date financial statement issuance.

The Company has enjoyed a good mutual relationship for the past four years.

– Results of Operations

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we note that the period-to-period comparison may not be indicative of future performance.

Ended December 31

of Goods sold

from operations

(loss) per share - basic and diluted attributable to common stockholders’ of OmniQ Corp

Year ended December 31,

Cost of Goods sold

Operating Expenses

Loss from operations

Net Loss per common Share from continuing operations

for the years ended December 31, 2022 and 2021 were generated from the sales of hardware, service contracts, software, labels and ribbons

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This represents an increase of 31.05%.

The increase was

due to growth in the marketplace and the acquisition of Dangot.

The increase was due to growth in

the marketplace and the acquisition of Dangot.

of Goods Sold

the years ended December 31, 2021 and 2020, the Company recognized a total of $61.5 million and $44.3 million respectively, of cost of

Cost of goods sold was 79% of net revenues for 2021 and 80% for 2020.

Our gross margin percentage has remained relatively

stable in an industry that is experiencing gross margin pressure.

the years ended December 31, 2022 and 2021, the Company recognized a total of $80.4 million and $61.6 million respectively, of cost

of goods sold.

Cost of goods sold was 78% of net revenues for 2022 and 79% of revenue for 2021.

Our gross margin percentage has

remained relatively stable in an industry that is experiencing gross margin pressure.

the years ended December 31, 2022 and 2021, operating expenses were $31.7 million and $27.1 million, respectively.

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The following explains in detail the change in operating expenses.

& Development – Research and development for the year ended December 31, 2021 totalled $1.8 million, compared

to $1.8 million for the year ended December 31, 2020.

& Development – Research and development for the year ended December 31, 2022 and 2021 totaled $1.8 million

General and Administrative – Selling, General and Administrative expenses were $27.7 million for the year ended December

31, 2022, compared to $21.9 million for the year ended December 31, 2021, representing an increase of $5.8 million, or 27%.

increase was due to a general increase in business operations, including the addition of Dangot in July 2021.

was due to additional share issuances to employees and directors as well as a large software implementation.

– Depreciation for the year ended December 31, 2022 were $324 thousand compared to $251 thousand for the year ended December

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million for the year ended December 31, 2021.

This represents an increase of $1.1 million, or 52%, attributable to the acquisition

of additional intangibles.

This represents a decrease of $1.4 million, or 43%, attributable to the acquisition of

additional intangibles.

Income and Expenses

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for Income Taxes

the year ended December 31, 2022, the Company has $35 thousand of current income tax provision (US State & Local and Foreign)

and $30 thousand deferred income tax expense.

the year ended December 31, 2021, the Company has $321 thousand of current income tax provision (US State & Local and Foreign) and

$165 thousand deferred income tax benefit.

the year ended December 31, 2020, the Company had $5 thousand in state income tax expenses for states in which the Company recently began

operations and for which past net operating losses may not apply.

Company realized a net loss of $13.6 million for the year ended December 31, 2022, compared to a net loss from continuing operations

of $13.1 million for the year ended December 31, 2021.

The increased loss in 2021 is due primarily to an increase in Selling, General

and Administrative expenses.

The increased loss in 2022 is due primarily to an increase in stock compensation.

and Capital Resources

of December 31, 2021, the Company had cash in the amount of $7 million and a working capital deficit of $23 million, compared

to cash in the amount of $5.1 million, and a working capital deficit of $24.8 million as of December 31, 2020.

had stockholders’ deficit attributable to OmniQ stockholders of $98 thousand and $5 million as of December 31, 2021

and 2020, respectively.

This decrease in our stockholders’ deficit was primarily attributable to the acquisition of Dangot

and the July 2021 equity raise.

of December 31, 2022, the Company had cash in the amount of $1.3 million and a working capital deficit of $38 million, compared to cash

in the amount of $7.1 million, and a working capital deficit of $22.9 million as of December 31, 2021.

The Company had stockholders’

deficit attributable to OmniQ stockholders of $10.5 million and $98 thousand as of December 31, 2022 and 2021, respectively.

This increase

in our stockholders’ deficit was primarily attributable to net losses.

Company’s accumulated deficit was $84.4 million and $70.6 million as of December 31, 2022 and 2021, respectively.

Company’s operations used net cash of $3,175 thousand and used $420 thousand the years ended December 31, 2021 and 2020,

Company’s operations provided net cash of $1.2 million and used $3.2 million the years ended December 31, 2022 and 2021,

respectively.

The decrease of cash from operations of $2,755 thousand is primarily a result of an increase in loss from operations.

The increase of cash from operations of $4.4 million is primarily a result of reduction in accounts receivable.

Company’s cash used in investing activities was $4,154 thousand for the year ended December 31, 2022 compared to cash provided

by investing activities of $9,235 thousand for the year ended December 31, 2021.

Company’s financing activities provided $14.5 million of cash during the year ended December 31, 2021, and used $3.4 million

during the year ended December 31, 2020.

During the year ended December 31, 2021, the Company made payments of $4.6 million on

its notes payable, including its Supplier Secured Promissory note and related party notes payable, compared to the year ended December

31, 2020, when the Company made payments of $1 million on its notes payable, including its Supplier Secured Promissory note and related

party notes payable.

Additionally, the Company borrowed $1 million on the Company’s line of credit during the year ended December

31, 2021, compared to the year ended December 31, 2020, when $3.5 million was borrowed from the Company’s line of credit.

addition the company raised $13.3 million, net of fees, during the year ended December 31, 2021 compared to zero for the year ended December

Company’s financing activities used $3.1 million of cash during the year ended December 31, 2022, and provided $14.5 million during

the year ended December 31, 2021.

During the year ended December 31, 2022, the Company made payments of $2.5 million on its notes payable,

including its Supplier Secured Promissory note and related party notes payable, compared to the year ended December 31, 2021, when the

Company made payments of $4.7 million on its notes payable, including its Supplier Secured Promissory note and related party notes payable.

Additionally, the Company borrowed $4 million on the Company’s line of credit during the year ended December 31, 2022, compared

to the year ended December 31, 2021, when $1 million was paid on the Company’s line of credit.

The Company did not raise funds

during the year ended December 31, 2022, compared to $13.3 million raised for the year ended December 31, 2021.

Sheet Arrangements

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

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

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

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

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

the customer on our behalf, and

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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

right to a good or service 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.

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Accounting Pronouncements

Pronouncements

Not Yet Adopted

March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform

on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited time to ease the potential burden

in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered

Rate (“LIBOR”) on financial reporting.

The guidance provides optional expedients and exceptions for applying GAAP to contracts,

hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments are elective

and are effective upon issuance for all entities through December 31, 2022.

The amendments of this ASU should be applied on a prospective

We intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR after 2021 and work with

our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition.

However, we can provide

no assurances regarding the impact of the discontinuation of LIBOR as there can be no assurances as to whether such replacement or alternative

base rate will be more or less favorable than LIBOR.

Our exposure related to the expected cessation of LIBOR is limited to the interest

expense we incur on balances outstanding under our Credit Facility.

The potential impact from the cessation of LIBOR as a reference rate,

as well as the applicability of ASU 2020-04, is not currently estimable.

Adopted Accounting Pronouncements

January 1, 2021, we adopted Accounting Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting

for Income Taxes (“ASU 2019-12”).

The guidance removes the following exceptions:

1) exception to the incremental approach

for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to

the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method

investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method

investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a

year-to-date loss exceeds the anticipated loss for the year.

Additionally, the guidance simplifies the accounting for income taxes by:

1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account

for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of

goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should

be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and

deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect

to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority),

4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation

in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee

stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

The adoption of

ASU 2019-12 did not have a material impact on our consolidated financial statements and footnotes.

Management has evaluated all recent accounting pronouncements

issued by the Financial Accounting Standards Board (FASB) and determined that none of the pronouncements will have a material impact on

the financial statements of the Company.

The Company will continue to monitor the issuance of any new accounting pronouncements and assess

their potential impact on the financial statements in future periods.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis