OMNIQ Corp. 10-Q

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