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: June 30, 2023 ☐ 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 Common Stock, $0.001 par value OMQS The Nasdaq Stock Market LLC 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: 7,890,837 shares of common stock, $0.001 par value, as of July 27, 2023. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION F-1 ITEM 1. FINANCIAL STATEMENTS F-1 CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2023 AND DECEMBER 31, 2022 F-1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 F-2 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND DECEMBER 31, 2022 F-3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 F-4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS F-5 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 7 ITEM 4. CONTROLS AND PROCEDURES 7 PART II - OTHER INFORMATION 7 ITEM 1. LEGAL PROCEEDINGS. 7 ITEM 1A. RISK FACTORS. 7 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 7 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 8 ITEM 4. MINE SAFETY DISCLOSURES. 8 ITEM 5. OTHER INFORMATION. 8 ITEM 6. EXHIBITS. 9 SIGNATURES 10 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OMNIQ CORP. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2023 December 31, 2022 (In thousands) As of June 30, 2023 December 31, 2022 ( UNAUDITED ) ASSETS Current assets Cash and cash equivalents $ 1,998 $ 1,311 Accounts receivable, net 18,283 23,893 Inventory 6,685 8,726 Prepaid expenses 1,261 1,268 Other current assets 371 473 Total current assets 28,598 35,671 Property and equipment, net of accumulated depreciation of $ 1,069 and $ 1,030 respectively 1,373 1,086 Goodwill 16,432 16,542 Trade name, net of accumulated amortization of $ 4,669 and $ 4,458 , respectively 1,522 1,826 Customer relationships, net of accumulated amortization of $ 11,241 and $ 10,762 , respectively 4,261 4,967 Other intangibles, net of accumulated amortization of $ 1,569 and $ 1,541 , respectively 577 675 Right of use lease asset 1,800 2,300 Other assets 1,202 1,744 Total Assets $ 55,765 $ 64,811 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable and accrued liabilities $ 52,859 $ 54,736 Line of credit 2,990 1,971 Accrued payroll and sales tax 1,699 2,633 Notes payable, related parties – current portion 97 293 Notes payable – current portion 8,941 11,572 Lease liability – current portion 829 942 Other current liabilities 1,431 1,394 Total current liabilities 68,846 73,541 Long term liabilities Accrued interest and accrued liabilities, related party 73 72 Notes payable, less current portion 1,570 55 Lease liability 1,010 1,404 Other long term liabilities 178 265 Total liabilities 71,677 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 and 544,500 shares issued and outstanding, respectively 1 1 Preferred stock value 1 1 Common stock; $ 0.001 par value; 15,000,000 shares authorized; 7,890,198 and 7,714,780 shares issued and outstanding, respectively. 8 8 Additional paid-in capital 75,000 73,714 Accumulated deficit ( 91,849 ) ( 84,460 ) Cumulative Translation Adjustment 928 211 Total OmniQ stockholders’ deficit ( 15,912 ) ( 10,526 ) Total liabilities and deficit $ 55,765 $ 64,811 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) (In thousands, except share and per share data) 2023 2022 2023 2022 For the three months For the Six months ending June 30, ended June 30, (In thousands, except share and per share data) 2023 2022 2023 2022 Revenues Total Revenues $ 20,446 $ 24,209 $ 48,268 $ 50,531 Cost of goods sold Cost of goods sold 16,560 18,222 38,659 38,417 Gross profit 3,886 5,987 9,609 12,114 Operating expenses Research & Development 559 468 982 990 Selling, general and administrative 5,315 7,072 12,082 13,547 Depreciation 96 58 204 151 Amortization 422 406 858 851 Total operating expenses 6,392 8,004 14,126 15,539 Loss from operations ( 2,506 ) ( 2,017 ) ( 4,517 ) ( 3,425 ) Other income (expenses): Interest expense ( 740 ) ( 878 ) ( 1,678 ) ( 1,689 ) Other (expenses) income ( 721 ) ( 389 ) ( 1,472 ) ( 653 ) Total other expenses ( 1,461 ) ( 1,267 ) ( 3,150 ) ( 2,342 ) Net Loss Before Income Taxes ( 3,967 ) ( 3,284 ) ( 7,667 ) ( 5,767 ) Provision for Income Taxes Current 101 98 294 14 Total Provision for Income Taxes 101 98 294 14 Net Loss $ ( 3,866 ) $ ( 3,186 ) $ ( 7,373 ) $ ( 5,753 ) Net income attributable to noncontrolling interest - - - 67 Net Loss attributable to OmniQ Corp $ ( 3,866 ) $ ( 3,186 ) $ ( 7,373 ) $ ( 5,820 ) Net Loss $ ( 3,866 ) $ ( 3,186 ) $ ( 7,373 ) $ ( 5,753 ) Foreign currency translation adjustment 260 241 717 77 Comprehensive loss $ ( 3,606 ) $ ( 2,945 ) $ ( 6,656 ) $ ( 5,676 ) Reconciliation of net loss to net loss attributable to common shareholders Net loss $ ( 3,866 ) $ ( 3,186 ) $ ( 7,373 ) $ ( 5,753 ) Less: Dividends attributable to non-common stockholders’ of OmniQ Corp ( 8 ) ( 141 ) ( 16 ) ( 189 ) Net income attributable to noncontrolling interest - - - 67 Net loss attributable to common stockholders’ of OmniQ Corp $ ( 3,874 ) $ ( 3,327 ) $ ( 7,389 ) $ ( 6,009 ) Net (loss) per share - basic attributable to common stockerholders’ of OmniQ Corp $ ( 0.49 ) $ ( 0.44 ) $ ( 0.95 ) $ ( 0.79 ) Weighted average number of common shares outstanding - basic 7,887,283 7,579,795 7,777,665 7,545,190 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 Accumulated Controlling Comprehensive Equity (In thousands) Shares Amount Shares Amount Capital Deficit Interest Income (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 Warrant 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 Dividends - - - - ( 141 ) - - ( 141 ) ESPP Stock Issuance - - 1 - 10 - - - 10 Noncontrolling interests - distributions and other - - - - ( 668 ) - ( 2,443 ) - ( 3,111 ) Exercise of stock options and warrants - - 18 - 87 - - - 87 Stock-based compensation – options, warrants, issuances - - - - 743 - - - 743 Cumulative Translation Adjustment - - - - - - 241 241 Net (loss) income - - - - - ( 3,186 ) - - ( 3,186 ) Balance, June 30, 2022 544 $ 1 7,579 $ 20 $ 71,585 $ ( 76,582 ) $ - $ 77 $ ( 4,899 ) 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 Warrant 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) income - - - - - ( 3,507 ) - - ( 3,507 ) Balance, March 31, 2023 502 $ 1 $ 7,884 $ 8 $ 74,458 $ ( 87,975 ) - $ 668 $ ( 12,840 ) Balance 502 $ 1 $ 7,884 $ 8 $ 74,458 $ ( 87,975 ) - $ 668 $ ( 12,840 ) Dividend on Class C Shares - - - - - ( 8 ) - - ( 8 ) ESPP Stock Issuance - - 2 - 8 - - - 8 Exercise of stock options and warrants - - 4 - 18 - - - 18 Stock-based compensation – options, warrants, issuances - - - - 516 - - - 516 Cumulative Translation Adjustment - - - - - - - 260 260 Net (loss) income - - - - - ( 3,866 ) - - ( 3,866 ) Balance, June 30, 2023 502 $ 1 7,890 $ 8 $ 75,000 $ ( 91,849 ) - $ 928 $ ( 15,912 ) Balance 502 $ 1 7,890 $ 8 $ 75,000 $ ( 91,849 ) - $ 928 $ ( 15,912 ) 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 For the six months ended June 30, (UNAUDITED) (In thousands) 2023 2022 Cash flows from operations Net loss $ ( 7,373 ) $ ( 5,753 ) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on disposal of PP&E - 46 Stock-based compensation 1,032 1,203 Stock and warrant issued for services 45 - Depreciation and amortization 1,062 1,002 Amortization of ROU asset 443 445 Changes in operating assets and liabilities: Accounts receivable 4,835 262 Prepaid expenses ( 27 ) ( 99 ) Inventory 1,693 ( 2,636 ) Other assets 406 87 Accounts payable and accrued liabilities ( 1,422 ) 7,293 Accrued interest and accrued liabilities, related party 1 6 Accrued payroll and sales taxes payable ( 973 ) 578 Lease liability ( 450 ) ( 442 ) Deferred tax assets, net 21 ( 105 ) Other liabilities ( 60 ) ( 350 ) Net cash provided by (used in) operating activities ( 767 ) 1,537 Cash flows from investing activities Payment for additional ownership in subsidiary - ( 3,518 ) Purchase of property and equipment 409 ( 80 ) Proceeds from sale of other assets 163 ( 171 ) Net cash provided by (used in) investing activities 572 ( 3,769 ) Cash flows from financing activities Proceeds from ESPP stock issuance 18 18 Proceeds from exercise of options and warrants 191 128 Dividends paid to non-controlling interest - ( 1,448 ) Payments on notes/loans payable ( 673 ) ( 2,591 ) Proceeds from the issuance of notes/loans payable - 3,183 Proceeds from draw on line of credit 1,147 ( 1,290 ) Net cash (used in) provided by financing activities 683 ( 2,000 ) Net change in cash and cash equivalents 488 ( 4,232 ) Effect of foreign exchange rates on cash and cash equivalents 199 64 - Cash and cash equivalents at beginning of period 1,311 7,085 Cash and cash equivalents at end of period $ 1,998 $ 2,917 Non-cash activities: Stock issued for services $ - $ 298 Declared dividends payable $ 16 $ 16 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,678 $ 1,689 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. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. 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 six-month period ended June 30, 2023, there were no significant changes to those accounting policies. 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 six-months ended June 30, 2023, and 2022 were 7,777,665 and 7,545,190 , 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 June 30, 2023 June 30, 2022 Options to purchase common stock 1,756,157 2,193,750 Warrants to purchase common stock 1,431,734 1,441,734 Potential shares excluded from diluted net loss per share 3,187,891 3,635,484 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 $ 40 million as of June 30, 2023 ● Accumulated deficit of $ 92 million as of June 30, 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 June 30, 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 six-months ended June 30, 2023 and the year ended December 31, 2022, two customers accounted for 19 % and one customer accounted for 30 %, respectively, of the Company’s consolidated revenues. Accounts receivable at June 30, 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 June 30, 2023, or December 31, 2022. For the six months ended June 30, 2023 and the year ended December 31, 2022 one vendor made up 42 % and 48 %, respectively, of our purchases. F- 6 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 June 30, 2023 December 31, 2022 Raw materials $ 622 $ 649 Inventory in transit 616 2,004 Finished goods (less allowance) 5,447 6,073 Total inventories $ 6,685 $ 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 June 30, 2023 December 31, 2022 In thousands Note payable –Marin $ 60 $ 180 Note payable –Thomet 37 113 Total notes payable 97 293 Less current portion ( 97 ) ( 293 ) Long-term portion $ - $ - 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 June 30, 2023, was $ 70 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. F- 7 NOTE 8 – NOTES PAYABLE SCHEDULE OF NOTES PAYABLE (In thousands) June 30, 2023 December 31, 2022 Note payable other 10,511 11,627 Total 10,511 11,627 Less current portion 8,941 11,572 Long term notes payable $ 1,570 $ 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. 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 June 30, 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) June 30, 2023 December 31, 2022 Other vendor payable $ 803 $ 801 Dividend payable 166 153 Others 640 705 Total other liabilities 1,609 1,659 Less Current Portion ( 1,431 ) ( 1,394 ) Total long term other liabilities $ 178 $ 265 F- 8 NOTE 10 – STOCKHOLDERS’ EQUITY PREFERRED STOCK Series A As of June 30, 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 June 30, 2023, there was 1 preferred share designated and no preferred shares outstanding. Series C As of June 30, 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 June 30, 2023, the accrued dividends on the Series C Preferred Stock were $ 166 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 six months ended June 30, 2023. For the six months ending June 30, 2023, 235,426 in stock options were exercised in exchange for 158,934 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 six months ending June 30, 2023, employees purchased 4,234 shares or $ 18 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. F- 9 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’s intends to defend 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 On July 6, 2023, OmniQ Corp. (the “Company”) entered into a Share and Rights Purchase Agreement (the Agreement”) with Afcon Holdings Ltd., (“Afcon”), a company organized under the laws of the State of Israel, and Ateka Ltd. (“Ateka”), a company organized under the laws of the State of Israel (Afcon and Ateka, jointly and severally, shall be referred to together as the “Sellers”) (OminQ and its newly formed wholly owned subsidiary which shall be alternatively referred to together as the “Company” or the “Purchaser”), and Tadiran Telecom Communication Services in Israel Ltd. (“TBSI”), a company organized under the laws of the State of Israel, Tadiran Telecom Communication Services in Israel L.P. (“TBSI LP”), a limited partnership organized under the laws of the State of Israel, Tadiran Telecom Technologies (2011) Ltd. (“TTT”), a company organized under the laws of the State of Israel, Tadiran Telecom (TTL) L.P. (“TTL LP”) a limited partnership organized under the laws of the State of Israel (TBSI, TBSI LP, TTT and TTL LP shall be referred together as “TT”). Afcon owns 100 % of the shares of TBSI and 99 % of the partnership equity rights in TBSI LP (the remaining 1 % being held by TBSI), and Ateka owns 100 % of the shares of TTT, and 99 % of the partnership equity rights in TTL LP (the remaining 1 % being held by TTT) (collectively the “Purchased Equity”). The Agreement provides that the Purchaser will acquire from the Sellers, the Purchased Equity in exchange for total consideration of $ 15.25 million (the “Purchase Price”) to be paid as follows: (i) $ 12,500,000 in cash and (ii) shares of the Company’s common stock having a value of $ 2.75 million based on market prices at closing. It is expected that, as part of the consideration, OmniQ will arrange a loan to TT in the approximate amount of $ 6.1 million that will repay all debts of TT to the Sellers. This $ 6.1 million debt repayment is part of the $ 12,500,00 cash portion of the Purchase Price. The Sellers are also eligible to earn an additional $ 750,000 of shares of OmniQ common stock if TT’s EBITA is positive in 24 months from closing. The closing of the Agreement is subject to certain closing conditions including but not limited to obtaining approval from the Israeli Competition (Antitrust) Commission, all necessary union approvals, certain third-party consents, and the compliance with certain cash and working capital requirements. F- 10 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, 2022 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, 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. 3 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 operations for the six months ended June 30, 2023, were $48 million, a decrease of approximately $2.3 million, or 4.5%, over the six months ended June 30, 2022. The loss from operations for the six months ended June 30, 2023, was $4.5 million, an increase of $1.1 million compared with the loss in the six months ended June 30, 2022, of $3.4 million. Basic loss per share from continuing operations for the six months ended June 30, 2023, was ($.95) versus ($.79) per share for the same period in 2022. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2023, the Company had cash in the amount of $2 million and a working capital deficit of $40 million, compared to cash in the amount of $1.3 million, and a working capital deficit of $40 million as of December 31, 2022. The Company had stockholders’ deficit attributable to OmniQ stockholders of $15.9 million and $10.5 million as of June 30, 2023, and December 31, 2022, respectively. This increase in our stockholders’ deficit was primarily attributable to net losses. The Company’s accumulated deficit was $91.8 million and $84.4 million as of June 30, 2023, and December 31, 2022. The Company’s operations used net cash of $767 and cash provided of $1.5 million in the six months ended June 30, 2023, and 2022, respectively. The decrease in cash provided by operations of $2,303 thousand is due to the decrease in revenue and paying down accounts payable. The Company’s cash provided from investing activities was $572 thousand for the six months ended June 30, 2023, compared to cash used in investing activities of $3.8 million for the six months ended June 30, 2022. The Company’s financing activities provided $683 thousand of cash during the six months ended June 30, 2023, and used $2 million during the six months ended June 30, 2022. During the six months ended June 30, 2023, the Company made payments of $673 thousand on its notes payable, including its related party notes payable, compared to the payments of $2.6 million for the six months ended June 30, 2022. Additionally, the Company borrowed $1.1 million on the Company’s line of credit during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, when $1.3 million was paid on the Company’s line of credit. 4 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. Three months ended June 30, Variation In thousands 2023 2022 $ % Revenue $ 20,446 $ 24,209 $ (3,763 ) (15.54 )% Cost of Goods sold 16,560 18,222 (1,662 ) (9.12 )% Gross Profit 3,886 5,987 (2,101 ) (35.09 )% Operating Expenses 6,392 8,004 (1,612 ) (20.14 )% Loss from operations (2,506 ) (2,017 ) (489 ) 24.24 % Net loss $ (3,866 ) $ (3,186 ) $ (680 ) 21.34 % Net Loss per common Share from continuing operations $ (0.49 ) $ (0.44 ) $ (0.05 ) 11.36 % Revenues For the three months ended June 30, 2023 and 2022, the Company generated net revenues in the amount of $20 million and $24 million, respectively. The decrease between the three-month periods was attributable to the decrease in demand and limitations in the supply chain. Cost of Goods Sold For the three months ended June 30, 2023 and 2022, the Company recognized a total of $16.6 million and $18.2 million, respectively, of cost of goods sold. For the three months ended June 30, 2023 and 2022, cost of goods sold were 81% and 75% of net revenues, respectively. Operating expenses Total operating expense for the three months ended June 30, 2023 and 2022 recognized was $6.4 million and $8 million, respectively, representing a 20% decrease. The decreases are related to the cost reduction plan put in place by management. Research and Development – Research and development expenses for the three months ended June 30, 2023 and 2022 totaled $559 thousand and $468 thousand, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the three months ended June 30, 2023 and 2022 totaled $5.3 million and $7 million, respectively, representing a 25% decrease. The decreases are related to the cost reduction plan put in place by management. Depreciation – Depreciation expenses for the three months ended June 30, 2023 and 2022 totaled $96 thousand and $58 thousand, respectively, representing a 66% increase. The increase is attributable to the addition of fixed assets. Intangible amortization – Intangible amortization expenses for the three months ended June 30, 2023 and 2022 totaled $422 thousand and $406 thousand, respectively. 5 Other income and expenses Interest Expense – Interest expense for the three months ended June 30, 2023 totaled $740 thousand, as compared to $878 thousand for the three months ended June 30, 2022. The decrease is primarily attributable to a reduction in debt. Six months ended June 30, Variation In thousands 2023 2022 $ % Revenue $ 48,268 $ 50,531 $ (2,263 ) (4.48 )% Cost of Goods sold 38,659 38,417 242 0.63 % Gross Profit 9,609 12,114 (2,505 ) (20.68 )% Operating Expenses 14,126 15,539 (1,413 ) (9.09 )% Loss from operations (4,517 ) (3,425 ) (1,092 ) 31.90 % Net loss $ (7,373 ) $ (5,753 ) $ (1,620 ) 28.16 % Net Loss per common Share from continuing operations $ (0.95 ) $ (0.79 ) $ (0.16 ) 20.00 % Revenues For the six months ended June 30, 2023 and 2022, the Company generated net revenues in the amount of $48.3 million and $50.5 million, respectively. The decrease between the six-month periods was attributable to the decrease in demand and limitations in the supply chain Cost of Goods Sold For the six months ended June 30, 2023 and 2022, the Company recognized a total of $38.7 million and $38.4 million, respectively, of cost of goods sold. For the six months ended June 30, 2023 and 2022, cost of goods sold were 80% and 76% of net revenues, respectively. Operating expenses Total operating expense for the six months ended June 30, 2023 and 2022 recognized was $14.1 million and $15.5 million, respectively, representing a 9% decrease. The decreases are related to the cost reduction plan put in place by management. Research and Development – Research and development expenses for the six months ended June 30, 2023 and 2022 totaled $982 thousand and $990 thousand, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the six months ended June 30, 2023 and 2022 totaled $12.1 million and $13.5 million, respectively, representing a 10% decrease. The decreases are related to the cost reduction plan put in place by management. Depreciation – Depreciation expenses for the six months ended June 30, 2023, and 2022 totaled $204 thousand and $151 thousand, respectively, representing a 35% increase. The increase is directly increased by the acquisition of additional fixed assets. Intangible amortization – Intangible amortization expenses for the six months ended June 30, 2023, and 2022 totaled $858 thousand and $851 thousand, respectively. Other income and expenses Interest Expense – Interest expense for the six months ended June 30, 2023 totaled $1.7 million, as compared to $1.7 million for the six months ended June 30, 2022. 6 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 June 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer (Principal Financial and Accounting Officer) concluded that, as of June 30, 2023, 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 2022, 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, 2023. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING We have been implementing additional internal control procedures in order to address the material weaknesses identified in our annual report on Form 10-K filed with the SEC on March 31, 2023. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 intends to defend the case. This case was filed in the Superior Court of the State of California, County of San Diego on October 21, 2020. ITEM 1A. RISK FACTORS Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. 7 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ITEM 5. OTHER INFORMATION. On August 8, 2023, Andrew MacMillan, a director of the Company passed away unexpectedly. The Company has named Independent Director, Guy Elhani to replace Mr. MacMillan as a member of the Audit Committee and Compensation Committee. On August 9, 2023, the Company received a deficiency letter from the Nasdaq Stock Market advising them that based on the Company’s Market Value of Listed Securities (“MLVS”) for the last 32 consecutive business days, the Company no longer meets the $35 million standard. The Company has 180 calendar days to regain compliance. If at anytime during this 180 day compliance period, the Company’s MLVS closes at $35 million or more for a minimum of ten consecutive business days, Nasdaq will provide you written notice of compliance and the matter will be closed. In the event that the Company does not regain compliance with the Rule prior to the expiration of the compliance period, it will receive written notification that its securities are subject to delisting. At such time, the Company may appeal the delisting determination to a Nasdaq Hearings Panel. The Company intends to put together a plan to achieve compliance. 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. 8 ITEM 6. EXHIBITS EXHIBIT INDEX 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) 10.1 Share and Rights Purchase Agreement dated July 6, 2023 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 10, 2023). 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). 9 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: August 14, 2023 OMNIQ CORP. By: /s/ Shai Lustgarten Shai Lustgarten President and Chief Executive Officer 10