OMNIQ Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS OMNIQ CORP. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2023 December 31, 2022 (In thousands, except share and per share data) As of March 31, 2023 December 31, 2022 ( UNAUDITED ) ASSETS Current assets Cash and cash equivalents $ 3,230 $ 1,311 Accounts receivable, net 25,649 23,893 Inventory 8,885 8,726 Prepaid expenses 1,632 1,268 Other current assets 729 473 Total current assets 40,125 35,671 Property and equipment, net of accumulated depreciation of $ 1,030 and $ 1,030 respectively 1,361 1,086 Goodwill 16,483 16,542 Trade name, net of accumulated amortization of $ 6,283 and $ 4,458 , respectively 1,670 1,826 Customer relationships, net of accumulated amortization of $ 11,001 and $ 10,762 , respectively 4,604 4,967 Other intangibles, net of accumulated amortization of $ 2,216 and $ 1,541 , respectively 621 675 Right of use lease asset 1,986 2,300 Other assets 1,620 1,744 Total Assets $ 68,470 $ 64,811 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable and accrued liabilities $ 58,216 $ 54,736 Line of credit 5,225 1,971 Accrued payroll and sales tax 2,637 2,633 Notes payable, related parties – current portion 195 293 Notes payable – current portion 10,843 11,572 Lease liability – current portion 890 942 Other current liabilities 1,733 1,394 Total current liabilities 79,739 73,541 Long term liabilities Accrued interest and accrued liabilities, related party 72 72 Notes payable, less current portion 44 55 Lease liability 1,141 1,404 Other long-term liabilities 314 265 Total liabilities 81,310 75,337 Stockholders’ deficit Series A Preferred stock; $ 0.001 par value; 2,000,000 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; 3,000,000 shares designated, 502,000 shares issued and outstanding, respectively 1 1 Preferred stock value 1 1 Common stock; $ 0.001 par value; 15,000,000 shares authorized; 7,884,878 and 7,714,780 shares issued and outstanding, respectively. 8 8 Additional paid-in capital 74,458 73,714 Accumulated deficit ( 87,975 ) ( 84,460 ) Cumulative Translation Adjustment 668 211 Total OmniQ stockholders’ deficit ( 12,840 ) ( 10,526 ) Total liabilities and deficit $ 68,470 $ 64,811 The accompanying unaudited notes should be read in conjunction with these unaudited condensed consolidated financial statements. F- 1 OMNIQ CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (In thousands, except share and per share data) 2023 2022 For the Three months ended March 31, (In thousands, except share and per share data) 2023 2022 Revenues Total Revenues $ 27,821 $ 26,322 Cost of goods sold Cost of goods sold 22,099 20,194 Gross profit 5,722 6,128 Operating expenses Research & Development 423 523 Selling, general and administrative 6,766 6,476 Depreciation 108 93 Amortization 436 445 Total operating expenses 7,733 7,537 Loss from operations ( 2,011 ) ( 1,409 ) Other income (expenses): Interest expense ( 938 ) ( 812 ) Other (expenses) income ( 751 ) ( 264 ) Total other expenses ( 1,689 ) ( 1,076 ) Net Loss Before Income Taxes ( 3,700 ) ( 2,485 ) Provision for Income Taxes Current 193 ( 84 ) Total Provision for Income Taxes 193 ( 84 ) Net Loss ( 3,507 ) ( 2,569 ) Net income attributable to noncontrolling interest - 67 Net Loss attributable to OmniQ Corp $ ( 3,507 ) $ ( 2,636 ) Net Loss $ ( 3,507 ) $ ( 2,569 ) Foreign currency translation adjustment 457 ( 10 ) Comprehensive loss $ ( 3,050 ) $ ( 2,579 ) Reconciliation of net loss to net loss attributable to common shareholders Net loss $ ( 3,507 ) $ ( 2,569 ) Less: Dividends attributable to non-common stockholders’ of OmniQ Corp ( 8 ) ( 48 ) Net income attributable to noncontrolling interest - 67 Net loss attributable to common stockholders’ of OmniQ Corp $ ( 3,515 ) $ ( 2,684 ) Net loss per share - basic attributable to common stockholders’ of OmniQ Corp $ ( 0.45 ) $ ( 0.34 ) Weighted average number of common shares outstanding - basic 7,749,870 7,511,376 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) (In thousands) Shares Amount Shares Amount Capital Deficit Interest (Loss) (Deficit) Series C Additional Non Other Comprehensive Total Stockholders’ Preferred Stock Common Stock Paid-in Accumulated Controlling Income Equity (In thousands) Shares Amount Shares Amount Capital Deficit Interest (Loss) (Deficit) Balance, December 31, 2021 544 $ 1 7,459 20 70,606 ( 70,571 ) 2,396 ( 154 ) 2,298 Dividend on Class C shares - - - - - ( 48 ) - - ( 48 ) ESPP stock issuance - - 2 - 8 - - - 8 Stock and warrants issued for services - - - - 298 - - - 298 Stock-based compensation – options, warrants, issuances - - - - 460 - - - 460 Exercise of stock options and warrants - - 99 - 41 - - - 41 Cumulative translation adjustment - - - - - - ( 20 ) ( 10 ) ( 30 ) Net (loss) income - - - - - ( 2,636 ) 67 ( 2,569 ) Balance, March 31, 2022 544 $ 1 7,560 $ 20 $ 71,413 $ ( 73,255 ) $ 2,443 $ ( 164 ) $ 458 Balance, December 31, 2022 544 $ 1 7,714 $ 8 $ 73,714 $ ( 84,460 ) - $ 211 $ ( 10,526 ) Dividend on Class C shares - - - - - ( 8 ) - - ( 8 ) ESPP stock issuance - - 2 - 10 - - - 10 Stock and warrants issued for services - - 10 - 45 - - - 45 Stock-based compensation – options, warrants, issuances - - - - 516 - - - 516 Exercise of stock options and warrants - - 156 - 173 - - - 173 Conversion of shares ( 42 ) - 2 - - - - - - Cumulative translation adjustment - - - - - - - 457 457 Net loss - - - - - ( 3,507 ) - - ( 3,507 ) Balance, March 31, 2023 502 $ 1 7,884 $ 8 $ 74,458 $ ( 87,975 ) - $ 668 $ ( 12,840 ) 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 FLOWS For the Three Months Ended March 31, (UNAUDITED) (In thousands) 2023 2022 Cash flows from operations Net loss $ ( 3,507 ) $ ( 2,569 ) Adjustments to reconcile net loss to net cash used in operating activities: Loss on disposal of PP&E - 46 Stock-based compensation 516 460 Stock and warrants issued for services 45 - Depreciation and amortization 544 538 Amortization of ROU asset 281 222 Changes in operating assets and liabilities: Accounts receivable ( 2,228 ) ( 2,641 ) Prepaid expenses ( 384 ) 506 Inventory ( 395 ) ( 678 ) Other assets 104 ( 167 ) Accounts payable and accrued liabilities 3,954 3,017 Accrued interest and accrued liabilities, related party 1 5 Accrued payroll and sales taxes payable 91 737 Lease liability ( 282 ) ( 220 ) Deferred tax assets, net ( 37 ) ( 65 ) Other liabilities 8 34 Net cash used in operating activities ( 1,289 ) ( 775 ) Cash flows from investing activities Purchase of property and equipment ( 341 ) ( 41 ) Proceeds from sale of other assets - ( 23 ) Net cash used in investing activities ( 341 ) ( 64 ) Cash flows from financing activities Proceeds from private placement - Proceeds from ESPP stock issuance 10 8 Proceeds from exercise of options and warrants 173 41 Dividends paid to non-controlling interest - ( 1,346 ) Proceeds (payments) on notes/loans payable ( 544 ) 566 Proceeds from draw on line of credit 3,361 1,699 Net cash provided by financing activities 3,000 968 Net change in cash and cash equivalents 1,370 130 Effect of foreign exchange rates on cash and cash equivalents 549 ( 292 ) Cash and cash equivalents at beginning of period 1,311 7,085 Cash and cash equivalents at end of period $ 3,230 $ 6,922 Non-cash activities: Declared dividends payable $ 8 $ 180 Warrants/stock issued for service $ - $ 298 Supplemental disclosure of cash flow information: $ Cash paid for interest $ 938 $ 1,105 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 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements include the accounts of OMNIQ Corp, and its wholly owned subsidiaries, referred to herein as “we,” “us,” “OMNIQ,” or the “Company.” Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). 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, 2022. During three-month period ended March 31, 2023, there were no significant changes to those accounting policies. Recent Accounting Pronouncements In August 2020, the Financial Statement Accounting Board (the “FASB”) issued ASU 2020-06 which simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. For contracts in an entity’s own equity, the new guidance eliminates some of the current requirements for equity classification such as the requirement that settlement in unregistered shares is permitted. In addition, the new guidance reduces the number of accounting models that require separating embedded conversion features from convertible instruments, including eliminating the requirement to recognize a beneficial conversion feature if the conversion feature is in the money and does not require bifurcation as a derivative liability. As a result, only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The Company adopted the new standards January 1, 2023. The adoption of this standard may allow the Company, in the future and in certain circumstances, to avoid derivative treatment of warrants and avoid beneficial conversion treatment of certain convertible preferred shares. Adoption of this standard had no effect on the Company’s financial statements. 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 three-months ended March 31, 2023, and 2022 were 7,749,870 and 7,511,376 , 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 EARNING PER SHARE March 31, 2023 March 31, 2022 Options to purchase common stock 1,907,583 2,188,750 Warrants to purchase common stock 1,481,734 1,411,734 Potential shares excluded from diluted net loss per share 3,389,317 3,600,484 F- 5 NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES The 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 as a going concern: ● Balancing the need for operational cash with the need to add additional products ● Timely and cost-effective development of products ● Working capital deficit of $ 39.6 million as of March 31, 2023 ● Accumulated deficit of $ 88 million as of March 31, 2023 ● Multiple periods of losses from operations ● Noncompliance with certain debt covenants These facts and others have 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. 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 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. ● 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. ● Blue Star - The Company’s total accounts payable due to Blue Star as of March 31, 2023 was approximately $ 37 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. NOTE 3 – CONCENTRATIONS For the three-months ended March 31, 2023, and the year ended December 31, 2022, two customers accounted for 30 %, respectively, of the Company’s consolidated revenues. Accounts receivable at March 31, 2023 and December 31, 2022 are made up of trade receivables due from customers in the ordinary course of business. No customer accounted for more than 10 % of the outstanding receivables as of March 31, 2023, or December 31, 2022. For the three months ended March 31, 2023, and the year ended December 31, 2022 two vendors made up 49 % and one vendor made up 48 %, respectively, of our purchases. NOTE 4 – BUSINESS ACQUISITION Dangot Computers Ltd 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 shares. The Company utilized its working capital and a combination of short- and long-term loans. NOTE 5 – INVENTORY Inventory consisted of the following as of: SCHEDULE OF INVENTORY In thousands March 31, 2023 December 31, 2022 Raw materials $ 827 $ 649 Inventory in transit 2,062 2,004 Finished goods (less allowance) 5,996 6,073 Total inventories $ 8,885 $ 8,726 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 with working capital. On March 25, 2022, we entered into a Business Finance Agreement (the “BFA”) with BridgeBank a division of Western Alliance Bank (“BridgeBank”) to establish the sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and assigning acceptable accounts receivables to BridgeBank. Pursuant to the BFA, the outstanding principal amount of advances made by BridgeBank at any time shall not exceed $ 8.5 million. BridgeBank reserves and withholds to 15 % of the face amount of each account purchased in a reserve account. The annual interest rate with respect to the daily average balance of unpaid advances outstanding under the BFA (computed on a monthly basis) is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus 1.5%, plus a monthly fee equal to 0.15% of the average outstanding balance. The BFA credit facility is collateralized with a senior security interest in certain assets of the Company. The BFA 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 In thousands March 31, 2023 December 31, 2022 Note payable –Marin $ 120 $ 180 Note payable –Thomet 75 113 Total notes payable 195 293 Less current portion 195 293 Long-term portion $ - $ - F- 6 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 March 31, 2023, was $ 72 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 8 – OTHER NOTES PAYABLE SCHEDULE OF OTHER NOTES PAYABLE (In thousands) March 31, 2023 December 31, 2022 Note payable other 10,887 11,627 Total 10,887 11,627 Less current portion 10,843 11,572 Long term notes payable $ 44 $ 55 Notes Payable Other On July 29, 2021, the Company entered into a long-term loan from Leumi Bank totalling NIS 7 million, which at the time was approximately $ 2.16 million. The note accrues interest at the Israeli Prime Rate plus 4.5 % which currently equals 8.25 % per annum and is payable in 8 instalments of principal and interest over 4 years . The note is secured by shares of Dangot Computers, Ltd. On November 28, 2021, the Company entered into another long-term loan from Leumi Bank totalling NIS 3.5 million, which at the time was approximately $ 1.1 million. The note accrues interest at the Israeli Prime Rate plus 4.5 % which currently equals 8.25 % per annum and is payable in 8 instalments of principal and interest over 4 years . The note is secured by shares of Dangot Computers, Ltd. On August 11, 2021, the Company purchased vehicles using cash and financing of NIS 500 thousand, approximately $ 155 thousand, to be paid off in monthly interest and principal payments over 5 years . The loan accrues interest at 7.5 % per annum and is secured by the vehicles. As of March 31, 2023, the remaining balance was NIS 292 thousand, approximately $ 81 thousand. On March 27, 2022, the Company entered into another long-term loan from Leumi Bank totalling NIS 3.5 million, which at the time was approximately $ 1.1 million. The note accrues interest at the Israeli Prime Rate plus 4.5 % which currently equals 8.25 % per annum and is payable in 8 instalments of principal and interest over 4 years . The note is secured by shares of Dangot Computers, Ltd. On September 13, 2022, the Company entered into a long-term loan from Hapoalim Bank totalling NIS 3 million, which at the time was approximately $ 0.9 million. The note accrues interest at 6.03 % per annum and is payable in 36 instalments of principal and interest over 3 years . During the year ended December 31, 2022, the Company entered into five short term loans totalling NIS 26.8 million, approximately $ 7.6 million. The note accrues average interest at 6.3 % per annum. As of March 31, 2023, the Company was not in compliance with certain financial covenants related to the Bank Leumi and Bank Hapoalim debt. The Company’s failure to comply with these financial covenants could result in an event of default under its debt agreements. Therefore, we reclassified the total balance as current debt on the balance sheet. The Company is actively pursuing options to address its noncompliance. The lenders have not requested early repayment of the loan as of the date when these financial statements were available to be issued. NOTE 9 – OTHER LIABILITIES SCHEDULE OF OTHER LIABILITIES (In thousands) March 31, 2023 December 31, 2022 Other vendor payable $ 803 $ 801 Dividend payable 159 153 Others 1,085 705 Total other liabilities 2,047 1,659 Less Current Portion ( 1,733 ) ( 1,394 ) Total long term other liabilities $ 314 $ 265 F- 7 NOTE 10 – STOCKHOLDERS’ EQUITY PREFERRED STOCK Series A As of March 31, 2023, there were 2,000,000 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 March 31, 2023, there was 1 preferred share designated and no preferred shares outstanding. Series C As of March 31, 2023, there were 3,000,000 Series C Preferred Shares (“Series C”) authorized with 502,000 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 March 31, 2023, the accrued dividends on the Series C Preferred Stock was $ 159 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 October 2021, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain in the employ of and attract new employees, directors, officers, consultants, advisors, and employees to the Company. Pursuant to the 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 Plan was approved by our stockholders at the December 2021, shareholders’ meeting. On February 25, 2022, the Company granted 792,500 stock options. These options were granted to employees as part of the Company’s Equity Incentive Plan. No options were issued in the three months ended March 31, 2023. For the three months ending March 31, 2023, 210,000 in stock options were exercised in exchange for 155,508 shares of OMNIQ common stock. No warrants were exercised. In December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the three months ending March 31, 2023, employees purchased 2,340 shares or $ 10 thousand of common stock. On August 10, 2022, our Board of Directors approved issuing 10,000 shares as part of an employment agreement. Shares were issued January 3, 2023, and valued at $ 45 thousand. NOTE 11 – LITIGATION The Company was named a defendant in a case involving a former employee who claims he is owed approximately $ 60 thousand in unpaid commissions. The Company is defending the case. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020. The company is not a party to any other pending material legal proceeding in which it is defending against any claims of material significance. 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 12 – SUBSEQUENT EVENTS F- 8