OMNIQ Corp. 10-K

ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure and Control Procedures We maintain “disclosure controls and procedures”, as such terms are defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures. The Company acknowledges that any controls and procedures can provide only reasonable assurances of achieving the desired control objectives. We have carried out an evaluation as required by Rule 13a-15(d) under the supervision of and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based upon their evaluation, the Chief Executive Officer and Principal Accounting Officer concluded that, as of December 31, 2023, the Company’s disclosure controls and procedures were not effective. Although we have determined that the existing controls and procedures are not effective, the deficiencies identified have not been deemed material to our reporting disclosures. (b) Management’s Report on Internal Controls over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Principal Accounting Officer, and affected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting cannot provide absolute assurance of achieving their objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures. Due to their inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. It is possible to design safeguards to reduce, but not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management has used the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on such evaluation, our CEO concluded that, as of December 31, 2023, our internal controls over financial reporting were not effective. As a result of our evaluation, we identified a material weakness in our controls related to segregation of duties and other immaterial weaknesses in several areas of data management and documentation. 17 Our management is composed of a small number of professionals resulting in a situation where limitations on segregation of duties exist. Accordingly, and as a result of the material weakness identified above, we have concluded that the control deficiencies result in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented on a timely basis by the Company’s internal controls. We continue to employ and refine a structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews by executives. In addition, we evaluate and assess our internal controls and procedures regarding our financial reporting, utilizing standards incorporating applicable portions of the Public Company Accounting Oversight Board’s 2009 Guidance for Smaller Public Companies in Auditing Internal Controls Over Financial Reporting as necessary on an on-going basis. While the material weakness set forth above was the result of the scale of the Company’s operations and is intrinsic to its small size, the Company believes the risk of material misstatements relative to financial reporting are minimal. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by its registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits the Company to provide only management’s report in this annual report. (c) Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION NONE ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISTICTIONS THAT PREVENT INSPECTIONS NONE PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table presents information with respect to our officers and directors as of the date of this Report: Name Age Positions Shai Lustgarten 53 CEO and Chairman Neev Nissenson 45 Director Yaron Shalem 51 Director Guy Elhanani 50 Director Mina Teicher 73 Director Background of our officers and directors The following is a brief account of the education and business experience during at least the past five years of our officers and directors, indicating each person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out. Shai S. Lustgarten, was appointed the Company’s CEO in April 2017 and served as the Company’s interim Chief Financial Officer (“CFO”) from December 2018 through September 2019 and again from November 2023 and is still the interim CFO as of the date of this report. Mr. Lustgarten had been the Chief Executive Officer of Teamtronics, Inc. beginning June 2016. Teamtronics manufactures rugged computers and electronic equipment mainly used in the Gas and oil industry. From 2014 to 2017, Mr. Lustgarten was the Chief Executive Officer at Micronet Limited Inc., a developer and manufacturer of mobile computing platforms for integration into fleet management and mobile workforce solutions listed on the Tel Aviv Stock Exchange. From 2013 to 2014, Mr. Lustgarten served as EVP Business Development and Head of the Aerospace and defense Division of Micronet EnertecTechnologies, a technology company listed on the NASDAQ Capital Market. From 2009 to 2013 Mr. Lustgarten was VP of Sales, Marketing and CMO of TAT Technologies, a world leading supplier of electronic systems to the commercial and defense markets. His prior experience also includes serving as CEO of T.C.E. Aviation Ltd. in Belgium and serving from 1993 to 1997 as the assistant to the Military Attaché at the Embassy of Israel in Washington, DC. He received his Bachelor of Science degree in Business Management & Computer Science from the University of Maryland. 18 Neev Nissenson became a director of the Company in April 2017 and was appointed as our CFO in September 2019 and resigned as CFO November 2023. Mr. Nissenson continues to serve as a director on the board. He is an experienced entrepreneur and financial officer. In 2015, Mr. Nissenson founded Hotwine, Inc., a California based wine startup company. Since August 2016 and until October 2019, Mr. Nissenson served as the CFO of Hypnocore, Ltd., an Israeli-based startup company that develops mobile applications for sleep monitoring and therapy. From 2011 to 2015, Mr. Nissenson was the CFO of GMW, Inc., a high-end wine retailer from Napa, California. Before that, Mr. Nissenson served as the Vice President from 2006 to 2011 and the CFO from 2009 to 2011 at Phoenix International Ventures, Inc., an aerospace defense company. Mr. Nissenson was also a member of the Municipal Committee for Business from 2004 to 2007 and a member of Municipal Committee for Street Naming from 2005 to 2007 in the City of Herzliya, Israel. He was also an armored-platoon commander in the Israeli Defense Forces (Reserve) Armored Corps with a rank of Captain. Mr. Nissenson graduated from Tel Aviv University in 2005 with a B.A. majoring in General History and Political Science. In 2007, he graduated from the Hebrew University with an Executive Master’s degree in Business Administration specializing in Integrative Management. Yaron Shalem became a director of the Company in April 2017. He has extensive experience in financial and business management. Mr. Shalem has served as the CFO at Saga Monetary Technologies Limited (UK) since January 2018. Prior to that Mr. Shalem served as the CFO at Singulariteam VC from January 2014 till January 2018. He also worked as the CFO at Mobli Media Inc. from January 2014 to December 2016. Mr. Shalem’s experience also includes serving as the CFO of TAT Technologies Ltd., a NASDAQ-listed company, from April 2008 to December 2013. Mr. Shalem is a CPA in Israel. He received his B.A. in Economy & Accounting from Tel Aviv University in 1999 and an MBA degree from Bar-Ilan University in 2004. Guy Elhanani became a director of the Company in August 2021. Mr. Elhanani is a qualified CFO with experience leading financial strategies to facilitate company growth. Mr. Elhanani is serving as the CFO of Tarya Ltd. , a public Fintech company which its shares are traded in the Tel Aviv Stock Exchange. Mr. Elhanani and has been the CFO and a partner of Singulariteam VC, a venture capital firm, since 2018. Mr. Elhanani has been the CFO of Sirin Labs since 2017. Sirin Labs is a multinational, high-tech company specializing in secured mobile phones. From 2015 to 2017, Mr. Elhanani was the CFO of SalesTech, an online internet technology servicing company. Mr. Elhanani has also served as the CFO of other companies, including: Micronet Ltd. (2012-2015); InterLogic Ltd. (2007-2012); and Finotec Group Inc. (2006-2007). From 2003 to 2006, Mr. Elhanani was the corporate controller of On Track Innovations Ltd. From 1999 to 2003, Mr. Elhanani was a senior auditor at Kesselman and Kesselman (PWC Israel). Mr. Elhanani was a lecturer at IVC College in Israel from 2014 to 2018 and at Hebrew University in Jerusalem from 2001 to 2003. Mr. Elhanani has also served as a board member for various companies, including: General Robotics (2017-2021); Effective Space Solutions (2017-2021); Octopus Systems (2017-2021); and Infinity AR (2017-2019). Mr. Elhanani received a B.A. in Accounting and Economics, and a Master of Business Administration, specializing in finance, from Hebrew University. Mina Teicher became a director of the Company in December 2022. Ms. Teicher is the former Chief Scientist of the Israel government. She is a leading mathematician specializing in Algebraic Geometry with applications to computer vision, cryptography, cyber security, neuroscience, neuro-medical devices, and complex societal systems, such as financial markets and health systems. She earned a PhD in Mathematics from Tel Aviv University and a postdoctoral fellowship from the Institute for Advanced Study in Princeton. She has published 140 scientific papers, wrote 5 books, mentored 80 students (Master, PhD, and postdocs) in Israel and the USA, organized 20 international conferences, and won prestigious invitations to deliver lectures, numerous awards, and highly competitive research grants (in Israel, Germany, Italy, the European Union, the USA, and China). Board Diversity The table below provides certain information regarding the diversity of our board of directors as the date of this annual report. Board Diversity Matrix Country of Principal Executive Offices: United States Foreign Private Issuer No Disclosure Prohibited under Home Country Law N/A Total Number of Directors 5 Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 1 4 - - Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction - LGBTQ+ - Did Not Disclose Demographic Background - Our Board seeks members from diverse professional backgrounds who combine a solid professional reputation and knowledge of our business and industry with a reputation for integrity. Our Board does not have a formal policy concerning diversity and inclusion but is in the process of establishing a policy on diversity. Diversity of experience, expertise, and viewpoints is one of many factors the Nominating and Corporate Governance Committee considers when recommending director nominees to our Board. Our Board also seeks members that have experience in positions with a high degree of responsibility or are, or have been, leaders in the companies or institutions with which they are, or were, affiliated, but may seek other members with different backgrounds, based upon the contributions they can make to our Company. While the Board has continued its efforts to identify candidates that have such experience, they have currently been unable to identify any such candidates which fulfill the diversity requirement with the requisite professional experience. Family Relationships There are no family relationships among and between the issuer’s directors, officers, persons nominated or chosen by the issuer to become directors or officers, or beneficial owners of more than ten percent of any class of the issuer’s equity securities. ITEM 11. EXECUTIVE COMPENSATION The table below shows the compensation for services in all capacities we paid during the year ended December 31, 2023 and 2022 to the individuals serving as our principal executive officers (whom we refer to collectively as our “named executive officers”); Name and Principal Position Year Salary ($) Bonus ($) Stock Awards Option Awards All Other Compensation Total In thousands Shai Lustgarten 2023 600 120 - - 28 $ 748 Chief Executive Officer and Interim CFO 2022 588 110 335 791 - $ 1,824 Neev Nissenson 2023 174 25 - - 54 $ 253 Chief Financial Officer (1) 2022 166 30 168 51 - $ 415 (1) Effective November 17, 2023, Neev Nissenson resigned from his position as CFO. 19 Bonuses Any bonuses granted in the future will relate to meeting certain performance criteria that are directly related to areas within the named executive’s responsibilities with the Company. As we continue to grow, more defined bonus programs may be established to attract and retain our employees at all levels. Employment Contracts In February 2020, we entered into an employment agreement with Mr. Lustgarten, the Company’s CEO, (the “Lustgarten Agreement”) pursuant to which Mr. Lustgarten shall continue to serve as the Company’s CEO. The Lustgarten Agreement has a four-year term and automatically renews for additional one-year periods unless either-party elects to terminate the Lustgarten Agreement. Pursuant to the Lustgarten Agreement, the Company shall pay Mr. Lustgarten an annual base salary of $560,000. Mr. Lustgarten shall also be eligible to receive i) equity awards pursuant to the Company’s Equity Incentive Plans and ii) certain milestone bonuses as set forth in the Lustgarten Agreement. In the event Mr. Lustgarten’s employment is terminated by Mr. Lustgarten for good reason, or terminated by the Company without cause, Mr. Lustgarten shall be entitled to the greater of (i) the unpaid base salary or (ii) one year’s base salary. At the sole discretion of our Board, all officers are entitled to merit-based cash and equity bonuses. Director Compensation Name Year Fees Earned or Paid in Cash ($) Stock Awards Option 1 Awards Non-Equity Incentive Plan Compensation Nonqualified Deferred Compensation All Other Compensation Total In thousands Yaron Shalem (1) 2023 24 - - - - - 24 2022 24 - 46 - - - 70 Guy Elhanani (1) 2023 24 - - - - - 24 2022 24 - 46 - - - 70 1. The fair value of the options awarded to Mr. Shalem, and Mr. Elhanani in 2022 was determined to be $46 thousand using the Black-Scholes Option Pricing Model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends 20 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The employment agreements for our named executive officers generally provide that in the event of termination of such executive’s employment for any reason, or if the executive resigns, the Company is required to pay certain separation benefits, including (i) unpaid annual salary earned through the termination date; (ii) unused vacation; (iii) accrued and unpaid expenses; and (iv) other vested and accrued benefits to which he is entitled under the Company’s employee benefit plan. In the event the executive voluntarily resigns for “good reason” (as defined in each executive’s respective Employment Agreement) or the Company terminates their employment for any reason other than for cause (as defined in each executive’s respective Employment Agreement), the Company will be required to pay certain termination benefits, including (i) a lump sum payment equal to the greater of (A) unpaid annual salary through the end of the Initial Term or Renewal Term (as those terms are defined in each executive’s respective Employment Agreement) or (B) two years of annual salary, and (ii) COBRA reimbursement. Indebtedness of Directors, Senior Officers, Executive Officers and Other Management None of our directors, executive officers or any associate or affiliate of our Company during the last two fiscal years is or has been indebted to our Company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding. CORPORATE GOVERNANCE Board Leadership Structure and Risk Oversight Our Board currently consists of 5 members: Mr. Shai Lustgarten, Mr. Neev Nissenson, Mr. Yaron Shalem, Mr. Guy Elhanani, and Ms. Mina Teicher. One of the key functions of our Board is to provide oversight of our risk management process. Our Board administers this oversight function directly, with support from its three standing committees—the Audit Committee, the Compensation Committee, and the Corporate Governance/Nominating Committee. The information set forth in Item 1C is also incorporated herein by reference. Director Independence Pursuant to Item 407(a)(1)(ii) of Regulation S-K promulgated under the Securities Act, we have adopted the definition of “independent director” as set forth in Rules 5000(a)(19) and 5605(a)(2) of the rules of the Nasdaq Stock Market. The Board determined that Mr. Yaron Shalem, Mr. Guy Elhanani, and Ms. Mina Teicher qualify as “independent directors” pursuant to such rules. Board Committees We have three standing committees: the Audit Committee, the Compensation Committee, and the Corporate Governance/Nominating Committee. We believe that the members of the Audit Committee, Compensation Committee and Corporate Governance/Nominating Committee are deemed to be “independent” pursuant to the NASDAQ listing standards and applicable SEC rules. We believe that all members of our Board have been and remain qualified to serve on the committees of our Board and have the experience and knowledge to perform the duties required of the committees. 21 Audit Committee The Audit Committee consists of Mr. Yaron Shalem, Mr. Guy Elhanani, and Ms. Mina Teicher whereby Mr. Shalem is the Chairperson. Our Board has determined that Mr. Shalem qualifies as an “audit committee financial expert,” as defined under the rules of the SEC. The primary responsibility of the Audit Committee is to oversee our financial reporting process on behalf of the Board and report the results of their activities to the Board. The Audit Committee’s responsibilities include providing assistance to the Board relating to: ● the integrity of the Company’s financial statements and the related public reports; ● disclosures and regulatory filings in which they appear; ● the systems of internal control over financial reporting, operations, and legal/regulatory compliance; ● the performance, qualifications, and independence of the Company’s independent accountants; ● the performance, qualifications, and independence of the Company’s internal audit function, and ● compliance with the Company’s ethics policies and applicable legal and regulatory requirements. Our Audit Committee charter is available on the “About Us” subpage of our website (www.omniq.com). Compensation Committee The Compensation Committee consists of Mr. Yaron Shalem, Mr. Guy Elhanani, and Ms. Mina Teicher. Mr. Shalem serves as Chairperson. The Compensation Committee’s responsibilities include, among others: ● approve annually the corporate goals and objectives applicable to the compensation of the CEO and/or President, evaluate at least annually the CEO’s and/or President’s performance in light of those goals and objectives, and determine and approve the CEO’s and/or President’s compensation level based on this evaluation; ● review matters relating to executive succession and management development; ● formulate, evaluate, and approve compensation for the Company’s officers; ● formulate, evaluate, and approve cash incentives and deferred compensation plans for executives; ● formulate, administer, and—when appropriate—recommend to the Board for approval, incentive compensation plans and equity-based plans; and ● approve employment contracts, severance agreements, change in control provisions, and other compensatory arrangements with Company executives. The Compensation Committee has the authority, in its sole discretion, to select, retain, and obtain the advice of a compensation consultant as necessary to assist with the execution of its duties and responsibilities. Our Compensation Committee charter is available on the “About Us” subpage of our website (www.omniq.com). 22 Corporate Governance/Nominating Committee The Corporate Governance/Nominating Committee consists of Mr. Yaron Shalem, Mr. Guy Elhanani, and Ms. Mina Teicher. Mr. Shalem serves as Chairperson. The Corporate Governance/Nominating Committee’s responsibilities include, among others: ● develop and oversee the Company’s corporate governance practices and procedures. Which includes identifying best practices, reviewing, and recommending to the Board for approval any changes to the documents, policies, and procedures in the Company’s corporate governance framework; ● establish procedures for the director nomination and to determine the qualifications, qualities, skills, and other expertise required to be a director and to develop, and recommend to the Board for its approval, criteria to be considered in selecting nominees for director; ● identify and screen individuals qualified to become members of the Board, consistent with the above criteria, considering any director candidates recommended by the Company’s stockholders; ● oversee a process for an annual evaluation of the Company’s CFO and/or President; and ● develop and oversee a process for an annual evaluation of the Board and its committees, including a formal assessment of each individual director. Our Corporate Governance/Nominating Committee charter is available on the “About Us” subpage of our website (www.omniq.com). Clawback Policy On December 1, 2023 the Board adopted the OMNIQ Corp. Clawback Policy (the “Clawback Policy”), providing for the recovery of certain incentive-based compensation from current and former executive officers of the Company in the event the Company is required to restate any of its financial statements filed with the SEC under the Exchange Act in order to correct an error that is material to the previously-issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Adoption of the Clawback Policy was mandated by new Nasdaq listing standards introduced pursuant to Exchange Act Rule 10D-1. The Clawback Policy is in addition to Section 304 of the Sarbanes-Oxley Act of 2002 which permits the SEC to order the disgorgement of bonuses and incentive-based compensation earned by a registrant issuer’s chief executive officer and chief financial officer in the year following the filing of any financial statement that the issuer is required to restate because of misconduct, and the reimbursement of those funds to the issuer. A copy of the Clawback Policy has been filed herewith and can also be found at www.omniq.com/investor-lounge. Involvement in Certain Legal Proceedings Our directors and executive officers have not been involved in any of the following events during the past ten years: 1. any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; 4. being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; 5. being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or 6. being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information regarding beneficial ownership of our Common Stock as of December 31, 2023: (i) by each of our directors, (ii) by each of our executive officers, (iii) by our executive officers and directors as a group, and (iv) by each person or entity known by us to beneficially own 5% or more of any class of our common stock. As of December 31, 2023, there were 10,675,802 shares of our common stock outstanding. Name of Beneficial Owner Amount of Beneficial Ownership Percentage of Shares Outstanding Shai Lustgarten (Chairman and CEO) 1 1,460,155 10.6 % Neev Nissenson 2 60,000 0.4 % Yaron Shalem 4 49,464 0.4 % Guy Elhanani 5 10,000 0.1 % Mina Teicher 6 10,000 0.1 % All Executive Officers and Directors as a group (5 individuals) 1,589,619 11.6 % Carlos Nissensohn 3 1,019,667 7.4 % 1. Includes 370,000 shares issuable upon the exercise of options. Also includes (i) 1,056,822 shares and (ii) 33,333 shares issuable upon the exercise of warrants held by Walefar Investments Ltd., which is beneficially owned by Mr. Lustgarten. 2. Includes 50,000 shares issuable upon the exercise of options. Also includes 10,000 shares. 3. Includes 739,308 shares held by Campbeltown Consulting Ltd., which is beneficially owned by Mr. Carlos J. Nissensohn. Also includes (i) 57,026 shares and (ii) 223,333 shares issuable upon exercise of options and warrants. 4. Includes 20,000 shares issuable upon exercise of options. Also includes 29,464 shares. 5. Includes 10,000 shares issuable upon exercise of options. 6. Includes 10,000 shares issuable upon exercise of options. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE In February 2020, OMNIQ entered into a consulting agreement with Mr. Carlos J. Nissensohn and/or an entity under his control, a consultant to the Company and principal stockholder, (the “Nissensohn Agreement”) pursuant to Mr. Nissensohn and/or an entity under his control will provide certain consulting services to the Company. The Nissensohn Agreement has a four-year term and automatically renews for additional one-year periods unless either party elects to terminate the Nissensohn Agreement. Pursuant to the Nissensohn Agreement, we will pay Mr. Nissensohn a monthly fee of $30,000. Mr. Nissensohn shall also be eligible to receive certain milestone bonuses as set forth in the Nissensohn Agreement. Mr. Nissensohn is a principal stockholder of the Company. Mr. Nissensohn is the father of Neev Nissenson, board member and former CFO. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. 24 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)(1) The following documents are filed under pages F-1 through F-26 and are included as part of this Form 10-K: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (HAYNIE) F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (BARZILY) F-3 CONSOLIDATED BALANCE SHEETS F-4 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS F-5 CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 (a)(2) Financial statement schedules are omitted as they are not applicable. (a)(3) Exhibits required by Item 601 of Regulation S-K are incorporated herein by reference and are listed on the attached Exhibit Index, which begins immediately following the financial statements of this Annual Report on Form 10-K. ITEM 16. FORM 10-K SUMMARY. NONE. 25 Signatures Pursuant to the requirements of Section 13 or 15(d) 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: April 1, 2024 OMNIQ CORP. By: /s/ Shai Lustgarten Shai Lustgarten Chief Executive Officer, Interim Chief Financial Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Shai Lustgarten Chairman of the Board, Chief Executive Officer and Interim Chief Financial Officer April 1, 2024 Shai Lustgarten /s/ Yaron Shalem Director April 1, 2024 Yaron Shalem /s/ Mina Teicher Director April 1, 2024 Mina Teicher /s/ Guy Elhanani Director April 1, 2024 Guy Elhanani 26 OMNIQ CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PCAOB: 457 (HAYNIE) F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PCAOB: 2015 (BARZILY) F-3 CONSOLIDATED BALANCE SHEETS F-4 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME F-5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of OMNIQ Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of OMNIQ Corp. (the Company) as of December 31, 2023, and 2022, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial position of the Company present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and 2022 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We did not audit portions of the December 31, 2023, and 2022, consolidated financial statements for Dangot Computers, Ltd., a wholly owned subsidiary. The portions not audited by us include assets of $20.2 million and $27.5 million as of December 31, 2023, and 2022, respectively, and total revenues of $44.8 million and $45.5 million for the years ended December 31, 2023, and 2022, respectively. Those portions of the December 31, 2023, and 2022, consolidated financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as they relate to the amounts included for Dangot Computers, Ltd. is based solely on the reports of the other auditors. Consideration of the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has a deficit in stockholders’ equity, and has sustained recurring losses from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill and Intangible Assets— Refer to Note 8 to the consolidated financial statements As described in Note 9 to the financial statements, the Company has $5.7 million of intangible assets and $1.8 million of goodwill after recording an impairment loss of $14.7 million. The Company evaluates its goodwill and intangible assets at least annually or more frequently when events or changes in circumstances indicate the carrying value may not be recoverable. In consideration of impairment, the Company employed a third-party specialist to prepare a valuation based on management’s estimates and market information. We identified potential impairment of these assets as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value, including the impact of forecasted growth, and the difference between the fair values and the carrying values as of December 31, 2023. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialist, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to certain assumptions within the projected cash flows. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. We followed professional standards relating to the use of specialists employed by management. These procedures included, among others, evaluating the expertise and independence of third-party specialists, gaining an understanding of management’s process for developing the fair value estimate, and assessing the inputs and key assumptions used to develop the models. We used professionals inside our firm with specialized skills and knowledge to assess the methodology. /s/ Haynie & Company Salt Lake City, Utah April 1, 2024 We have served as the Company’s auditor since 2019 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of OMNIQ CORP. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Dangot Computers Ltd. (the “Company”) as of December 31, 2023, and 2022, and the related consolidated statements of operations and comprehensive loss, change in stockholders’ equity (deficit). and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “Financial Statement”). In our opinion, the consolidated financial statement present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022 and the results of its operation and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the board of directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters. We have served as the Company’s auditor since 2020. BARZILY AND CO., CPA’s Jerusalem, Israel April 1,2024 F- 3 OMNIQ CORP. CONSOLIDATED BALANCE SHEETS As of December 31, (In thousands, except share and per share data) 2023 2022 ASSETS Current assets Cash and cash equivalents $ 1,678 $ 1,311 Accounts receivable, net 18,654 23,893 Inventory 6,028 8,726 Prepaid expenses 969 1,268 Other current assets 25 473 Total current assets 27,354 35,671 Property and equipment, net of accumulated depreciation of $ 1,166 and $ 1,030 respectively 1,066 1,086 Goodwill, net of accumulated impairment of $ 14,868 and $ 0 , respectively 1,788 16,542 Trade name, net of accumulated amortization of $ 4,850 and $ 4,458 , respectively 1,377 1,826 Customer relationships, net of accumulated amortization of $ 11,814 and $ 10,762 , respectively 3,777 4,967 Other intangibles, net of accumulated amortization of $ 1,669 and $ 1,541 , respectively 504 675 Right of use lease asset 1,862 2,300 Other assets 1,758 1,744 Total Assets $ 39,486 $ 64,811 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 56,741 $ 53,701 Line of credit 240 1,971 Accrued payroll and sales tax 1,537 2,633 Notes payable, related parties - 293 Notes payable – current portion 10,196 11,572 Lease liability – current portion 885 942 Other current liabilities 3,106 2,429 Total current liabilities 72,705 73,541 Long term liabilities Accrued interest and accrued liabilities, related party 73 72 Notes payable, less current portion 265 55 Lease liability 1,011 1,404 Other long-term liabilities 452 265 Total liabilities 74,506 75,337 Stockholders’ equity (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 1 1 Common stock; $ 0.001 par value; 15,000,000 shares authorized; 10,675,802 and 7,714,780 shares issued and outstanding, respectively 11 8 Additional paid-in capital 78,340 73,714 Accumulated (deficit) ( 113,923 ) ( 84,460 ) Accumulated other comprehensive income 551 211 Total OmniQ stockholders’ equity (deficit) ( 35,020 ) ( 10,526 ) Total liabilities and equity (deficit) $ 39,486 $ 64,811 The accompanying notes are integral to these consolidated financial statements. F- 4 OMNIQ CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, (In thousands, except share and per share data) 2023 2022 Revenues $ 81,193 $ 100,758 Cost of goods sold 65,485 78,654 Gross profit 15,708 22,104 Operating expenses Research & Development 2,154 1,826 Selling, general and administrative 22,960 27,707 Depreciation 464 324 Amortization 1,640 1,799 Goodwill impairment expense 14,686 - Total operating expenses 41,904 31,656 Loss from operations ( 26,196 ) ( 9,552 ) Other income (expenses): Interest expense ( 3,303 ) ( 3,496 ) Other (expenses) income ( 575 ) ( 601 ) Total other expenses ( 3,878 ) ( 4,097 ) Net Loss Before Income Taxes ( 30,074 ) ( 13,649 ) Provision for Income Taxes Current 643 35 Total Provision for Income Taxes 643 35 Net Loss ( 29,431 ) ( 13,614 ) Net income attributable to noncontrolling interest - 67 Net Loss attributable to OmniQ Corp $ ( 29,431 ) $ ( 13,681 ) Net Loss $ ( 29,431 ) $ ( 13,614 ) Foreign currency translation adjustment 340 365 Comprehensive loss $ ( 29,091 ) $ ( 13,249 ) Reconciliation of net loss to net loss attributable to common shareholders Net loss $ ( 29,431 ) $ ( 13,614 ) Less: Dividends attributable to non-common stockholders’ of OmniQ Corp ( 32 ) ( 206 ) Net loss attributable to common stockholders’ of OmniQ Corp $ ( 29,463 ) $ ( 13,820 ) Net (loss) per share - basic attributable to common stockholders’ of OmniQ Corp $ ( 3.50 ) $ ( 1.82 ) Weighted average number of common shares outstanding - basic 8,412,494 7,576,434 The accompanying notes are integral to these consolidated financial statements. F- 5 OMNIQ CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) For the Years Ended December 31, 2023 and 2022 Series C Additional Non Accumulated 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 - - - - - ( 206 ) - - ( 206 ) ESPP Stock Issuance - - 7 - 37 - - - 37 Stock and Warrant issued for services - - 20 - 109 - - - 109 Stock-based compensation – options, warrants, issuances - - 100 - 3,173 - - - 3,173 Warrant issuances, net of issuance costs - - - - 298 - - - 298 Exercise of stock options and warrants - - 128 - 147 - - - 147 Non-controlling interests, distributions and other - - - - ( 668 ) - ( 2,443 ) - ( 3,111 ) Other - - - ( 12 ) 12 - - - - Cumulative Translation Adjustment - - - - - ( 2 ) ( 20 ) 365 343 Net (loss) income - - - - - ( 13,681 ) 67 - ( 13,614 ) Balance, December 31, 2022 544 $ 1 7,714 $ 8 $ 73,714 $ ( 84,460 ) $ - $ 211 $ ( 10,526 ) Balance 544 $ 1 7,714 $ 8 $ 73,714 $ ( 84,460 ) $ - $ 211 $ ( 10,526 ) Dividend on Class C Shares - - - - - ( 32 ) - - ( 32 ) ESPP Stock Issuance - - 15 - 31 - - - 31 Stock-based compensation – options, warrants, issuances - - - - 1,955 - - - 1,955 Stock and Warrant issued for services - - 10 - 45 - - - 45 Exercise of stock options and warrants - - 159 - 190 - - - 190 Stock and warrant issuances, net of issuance costs - - 2,775 3 2,405 - - - 2,408 Conversion of equity ( 42 ) - 2 - - - - - - Cumulative Translation Adjustment - - - - - - - 340 340 Net (loss) income - - - - - ( 29,431 ) - - ( 29,431 ) Balance, December 31, 2023 502 $ 1 10,675 $ 11 $ 78,340 $ ( 113,923 ) $ - $ 551 $ ( 35,020 ) Balance 502 $ 1 10,675 $ 11 $ 78,340 $ ( 113,923 ) $ - $ 551 $ ( 35,020 ) The accompanying notes to the financials should be read in conjunction with these financial statements. F- 6 OMNIQ CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, (In thousands) 2023 2022 Cash flows from operations Net loss $ ( 29,431 ) $ ( 13,614 ) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on disposal of PP&E - 46 Noncash interest expense - 248 Stock-based compensation 1,955 3,173 Stock and warrant issued for services 45 109 Depreciation and amortization 2,104 2,119 Goodwill impairment 14,686 - Amortization of ROU asset 892 1,000 Changes in operating assets and liabilities: Accounts receivable 4,948 1,472 Prepaid expenses 285 585 Inventory 2,398 ( 2,490 ) Other assets 268 131 Accounts payable and accrued liabilities 2,732 10,830 Accrued interest and accrued liabilities, related party 1 8 Accrued payroll and sales taxes payable ( 1,021 ) 268 Lease liability ( 904 ) ( 1,000 ) Deferred tax assets, net ( 32 ) ( 263 ) Other liabilities 1,244 ( 1,419 ) Net cash provided by (used in) operating activities 170 1,203 Cash flows from investing activities Payment for additional ownership in subsidiary - ( 3,518 ) Purchase of property and equipment ( 479 ) ( 451 ) Proceeds from sale of other assets 148 ( 185 ) Net cash provided by (used in) investing activities ( 331 ) ( 4,154 ) Cash flows from financing activities Proceeds from ESPP stock issuance 31 37 Proceeds from exercise of options and warrants 190 147 Dividends paid to non-controlling interest - ( 1,448 ) Net proceeds from issuance of common stock 2,408 - Payments on notes/loans payable ( 1,444 ) ( 2,525 ) Proceeds from the issuance of notes/loans payable 393 4,770 Payments on line of credit ( 1,628 ) ( 4,038 ) Net cash (used in) provided by financing activities ( 50 ) ( 3,057 ) Net change in cash and cash equivalents ( 211 ) ( 6,008 ) Effect of foreign exchange rates on cash and cash equivalents 578 234 Cash and cash equivalents at beginning of period 1,311 7,085 Cash and cash equivalents at end of period $ 1,678 $ 1,311 Non-cash activities: Stock issued for services $ - $ 298 Declared dividends payable $ 32 $ 24 Right of use asset acquired in exchange for lease liability $ 1,110 $ Supplemental disclosure of cash flow information: $ Cash paid for interest $ 3,318 $ 2,569 Cash paid for income taxes $ - $ 66 The accompanying notes are integral to these consolidated financial statements. F- 7 OMNIQ CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2023 and 2022 NOTE 1 – NATURE OF OPERATIONS OMNIQ Corp., a Delaware corporation, formerly Quest Solution, Inc., together with its wholly owned and majority owned subsidiaries, referred to herein as “we”, “us”, “our,” “OMNIQ,” or the “Company,” was incorporated in 1973. Since its incorporation, the Company has been involved in various lines of business. From 2008 to 2013, we were in the business of developing oil and gas reserves. In January 2014, we determined it was in the best interest of our stockholders to focus on operating companies with a track record of positive cash flows and larger existing revenue bases. Our strategy developed into leveraging management’s relationships in the business world for investments for us. Since 2014, we have made the following acquisitions resulting in us becoming a leading provider of computerized and machine-vision image-processing solutions: ● Quest Solutions, Inc. (January 2014) ● Bar Code Specialties, Inc. (November 2014) ● HTS Image Processing, Inc. (October 2018) ● EyepaxIT Consulting LLC. (February 2020) ● Dangot Computers Ltd. (July 2021) We use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real-time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management, and access control applications. The technology and services we provide helps our clients move people, assets, and data safely and securely through airports, warehouses, schools, national borders, and many other applications and environments. Our principal solutions include hardware, software, communications, and automated management services. We are an established distributor of barcode labels, tags, and ribbons, as well as RFID labels and tags. We provide printing solutions, credit card terminals, automatic kiosks and point-of-care units. We also offer technical service and support. Our highly tenured team of professionals has the knowledge and expertise to simplify the integration process for our customers, and our team delivers proven problem-solving solutions backed by numerous customer references. We offer comprehensive packaged and configurable software, and we are a leading provider of best-in-class mobile and wireless equipment. Our customers include government agencies and leading Fortune 500 companies from diverse sectors, including healthcare, food and beverage, manufacturing, retail, distribution, and transportation and logistics. Since 2014, our annual consolidated revenues have grown to more than $80 million with clients in more than 40 countries. We currently engage with several billion-dollar markets with double-digit growth, including the Global Safe City market and the Ticketless Safe Parking market. F- 8 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation Our consolidated financial statements include the financial position and results of operations of OMNIQ Corp. and its wholly owned subsidiaries: Quest Marketing, Inc., HTS Image Processing, Inc., OmniQ Vision Inc., HTS Image Ltd., OmniQ Technologies Ltd., and Dangot Computers Ltd. All significant intercompany accounts and transactions have been eliminated in these consolidated financial statements. Business combinations are included in the consolidated financial statements from their respective dates of acquisition. Use of Estimates We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates. Cash Cash consists of petty cash, checking, savings, and money market accounts. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts Receivable We manage credit risk associated with our accounts receivables at the customer level. Because the same customers typically generate the revenues that are accounted for under both Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606) and Accounting Standards Codification Topic 326, Credit Losses (Topic 326 ), the discussions below on credit risk and our allowances for doubtful accounts address our total revenues from Topic 606 and Topic 326. Pursuant to Topic 326 for our accounts receivables, we maintain an allowance for doubtful accounts that reflects our estimate of our expected credit losses. Our allowance is estimated using a loss-rate model based on delinquency. The estimated loss rate is based on our historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data. We perform credit evaluations of customers and establish credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance for doubtful accounts. Inventory Substantially all inventory consists of raw materials and finished goods and are valued at the lower of historic cost or net realizable value; where net realizable value is considered to be the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation. Historic inventory costs are calculated on a first-in, first-out basis or specific cost. Property and Equipment Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives. Ordinary repair and maintenance costs are included in sales, general and administrative (“SG&A”) expenses on our consolidated statements of operations. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. At the time assets are sold or disposed of, the cost and accumulated depreciation are removed from their respective accounts and the related gains or losses are reflected in the statements of operations in gains from sales of property and equipment, net. F- 9 We periodically evaluate the appropriateness of remaining depreciable lives assigned to property and equipment. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is shorter. Generally, we assign the following estimated useful lives to these categories: SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT Category Estimated Useful Life Furniture and fixtures 5 to 7 years Computer equipment 3 to 5 years Office equipment 3 to 10 years Software 3 years Leasehold improvements 15 years Vehicles 5 years Definite-lived Intangible Assets The Company periodically evaluates the carrying value of definite-lived intangibles when events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results, significant changes in the manner of its use of acquired assets or its overall business strategy, and significant industry or economic trends. The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded no impairment loss for definite-lived intangible assets during the years ended December 31, 2023 and 2022. When the Company determines that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators, the Company determines the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate and recognizes an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset. If the Company’s revenues or other estimated operating results are not achieved at or above our forecasted level, and the Company is unable to recover such costs through price increases, the carrying value of certain of the Company’s intangible assets may prove to be unrecoverable and we may incur impairment charges of definitive-live intangible assets. Definite-lived intangible assets are stated at cost, net of accumulated amortization. The assets are being amortized on the straight-line method over useful lives ranging from 3 to 11 years with a remaining weighted average lifespan of 7.1 years. Indefinite-lived Intangible Assets, Including Goodwill Indefinite-lived intangible assets, including goodwill, are not amortized but are required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value. The Company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of the Company’s reporting unit is less than its corresponding carrying value. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of the reporting unit is less than its corresponding carrying value then the Company is not required to take further action. However, if the Company concludes otherwise, then the Company must calculate the fair value of the reporting unit and compare it with its carrying amount, including Indefinite-lived intangible assets and recognize impairment equal to the difference between the carrying amount of the reporting unit and its fair value, considering the related income tax effect from any tax-deductible goodwill. Accounts Payable Accounts payable are made up of payables due to vendors in the ordinary course of business as of December 31, 2023 and 2022. Two vendors made up 38 % and one vendor made up 48 % of our purchases during the year ended December 31, 2023 and 2022, respectively. Leases We determine whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset, and we have the right to control the asset for a period of time in exchange for consideration. Lease arrangements can take several forms. Some arrangements are clearly within the scope of lease accounting, such as a real estate contract that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration. However, the right to use an asset can also be conveyed through arrangements that are not leases in form, such as leases embedded within service and supply contracts. We analyze all arrangements with potential embedded leases to determine if an identified asset is present, if substantive substitution rights are present, and if the arrangement provides the customer control of the asset. F- 10 Our lease portfolio is substantially comprised of operating leases related to leases of real estate. From time to time, we may also lease various types of small equipment and vehicles. Operating lease right-of-use (“ROU”) assets represent our right to use an individual asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide the lessor’s implicit rate, we use our incremental borrowing rate (“IBR”) at the commencement date in determining the present value of lease payments by utilizing a fully collateralized rate for a fully amortizing loan with the same term as the lease. Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. Our leases can include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when such renewal options and/or termination options are reasonably certain of exercise. An ROU asset is subject to the same impairment guidance as assets categorized as property and equipment. As such, any impairment loss on ROU assets is presented in the same manner as an impairment loss recognized on other long-lived assets. A lease modification is a change to the terms and conditions of a contract that change the scope or consideration of a lease. For example, a change to the terms and conditions to the contract that adds or terminates the right to use one or more underlying assets, or extends or shortens the contractual lease term, is a modification. Depending on facts and circumstances, a lease modification may be accounted as either: (1) the original lease plus the lease of a separate asset(s) or (2) a modified lease. A lease will be remeasured if there are changes to the lease contract that do not give rise to a separate lease. Revenue Recognition We determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied. We combine contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. Our contracts are typically governed by a customer purchase order or work order. The contract generally specifies the delivery of what constitutes a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers. As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We do not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue. A contract liability is recognized as deferred revenue when we invoice customers, or receive customer cash payments, in advance of satisfying the related performance obligation(s) under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation. We have four main revenue streams: (1) Hardware sales, (2) Hardware installation/configuration, (3) Hardware service contracts, and (4) Third-party software sales. For all these revenue streams, our performance obligations are satisfied at a point in time, and therefore, revenue is recognized at point in time when a customer takes control of the good or asset created by the service. Factors that may indicate transfer of control are when we have the right to receive payment for the good or service, when the legal title of the asset as been transferred, physical possession of the asset has been transferred, the customer obtains the significant risks and rewards of ownership of the asset, and the customer accepts the asset. For some customers, control is transferred when the customer, or the customer’s courier, picks up the hardware from our warehouse. For other customers, control is transferred upon delivery. For hardware sales which also include installation and/or configuration as a single performance obligation, control is transferred only when the hardware is delivered and installed/configured. For hardware service contracts and for third-party software sales, the Company acts as the agent in the transaction, and thus recognizes revenue on a net basis at a point in time when the transaction has been facilitated. We leverage drop-ship shipments with many of our partners and suppliers to deliver hardware to our customers without having to physically hold the inventory at our warehouses, thereby increasing efficiency and reducing costs. We recognize revenue for drop-ship arrangements on a gross basis as the principal in the transaction when the product is received by the customer because we control the product prior to transfer to the customer. We also assume primary responsibility for the fulfillment in the arrangement, we assume inventory risk if something were to happen to the hardware during shipping, we set the price of the product charged to the customer, we assume credit risk for nonpayment by our customer, and we work closely with customers to determine their hardware specifications. Management reviews historical returns on at least an annual basis to determine the need for an allowance for sales returns. Historically, sales returns have been extremely limited, with the effect on the financial statements immaterial. Sales returns during any particular year are so small and so infrequent that management determined that any material reserve against sales returns would likely not be appropriate. Stock-Based Compensation We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by Financial Accounting Standards Board (the “FASB”) where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. We record stock-based compensation expense according to the provisions of ASC Topic 718, Compensation – Stock Compensation (“Topic 718”). Topic 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Under the provisions of Topic 718, the Company determines the appropriate fair value model to be used for valuing share-based payments and the amortization method for compensation cost. The fair value of each stock option grant and warrant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates the expected volatility and expected option life consistent with Topic 718. The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock options as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed US treasury rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straight-line basis primarily over the vesting period of the options. F- 11 Advertising The Company expenses marketing and advertising costs as incurred. During 2023 and 2022, the Company spent $ 379 thousand and $ 630 thousand, respectively, on marketing, trade show, and advertising. Foreign Currency Translation Our consolidated financial statements are presented in U.S. dollars. The functional currency for the Company is U.S. dollars. Transactions in currencies other than the functional currency are recorded using the appropriate exchange rate at the time of the transaction. All our continuing operations are conducted in U.S. dollars except for subsidiaries located in Israel. The records of the Israeli operations were maintained in the local currency and translated to the reporting currency as follows: assets and liabilities are translated using the balance sheet period-end date exchange rate. Expenses and income are translated using the weighted average exchange rates for the reporting period. Foreign translation gains and losses are reported on the consolidated statement of operations and comprehensive loss and were included in the amount of loss from comprehensive income. The aggregate foreign currency transaction loss included in net income for the years ended December 31, 2023 and 2022 was $ 1 million, respectively. Income Taxes We account for our income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets, liabilities, and income taxes are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Income tax expense is based on reported earnings before income taxes. Our income is subject to taxation in both the U.S. and a foreign jurisdiction, Israel. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company establishes reserves for income-tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when we believe positions do not meet the more-likely-than-not recognition threshold. We adjust uncertain tax liabilities in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of uncertain tax liabilities and changes in liabilities that are considered appropriate. Comprehensive Income (Loss) Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Our other comprehensive income (loss) is composed of foreign currency translation adjustments. 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 years ended December 31, 2023 and December 31, 2022 were 8,412,494 and 7,576,434 , 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 as of December 31, 2023 and 2022, excluded from the computation of diluted net loss per share because such securities have an anti-dilutive impact due to losses reported: SCHEDULE OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION OF EARNINGS PER SHARE 2023 2022 Options to purchase common stock 1,471,407 2,190,583 Warrants to purchase common stock 1,606,734 1,481,734 Potential shares excluded from diluted net loss per share 3,078,141 3,672,317 F- 12 Reclassifications and Comparability Certain revenue and cost of goods sold amounts in the financial statements of the prior year have been reclassified to be presented on a net basis rather than a gross to conform to the current year’s presentation for comparative purposes. The total amount reclassified from cost of goods sold to revenue, as a reduction, was $1.8 million. This had no effect on total assets or net income. Recently adopted accounting pronouncements In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities will measure credit losses for financial assets and certain other instruments that are not measured at fair value through net income. The new expected credit loss impairment model requires immediate recognition of estimated credit losses expected to occur. Additional disclosures are required regarding assumptions, models, and methods for estimating the credit losses. ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, deferred the effective date for non-public companies. The standard is effective for non-public companies for fiscal years beginning after December 15, 2022. We adopted these requirements as of January 1, 2023 with no material impact on our consolidated financial statements. 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. Recent Accounting Pronouncements not yet adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other segment items on an annual and interim basis. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”). This ASU will be effective for the Company’s fiscal December 31, 2024 year-end and interim periods beginning in fiscal 2025, with early adoption permitted. We are assessing the impact of this guidance on our disclosures; it will not have an impact on our results of operations, cash flows, or financial condition. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as, disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU will be effective for the Company’s fiscal December 31, 2025 year-end, with early adoption permitted. We are assessing the impact of this guidance on our disclosures; it will not have an impact on our results of operations, cash flows, or financial condition. NOTE 3 – GOING CONCERN 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 $ 45 million as of December 31, 2023 ● Accumulated deficit of $ 113.9 million as of December 31, 2023 ● Multiple years of losses from operations ● Year over year decrease in sales ● Noncompliance with certain debt covenants Management Evaluation Management considers the conditions outlined above as the most significant factors in raising substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Management’s Plans to Mitigate and Alleviate Conditions or Events ● Management is evaluating operating expenses and is developing a plan to reduce expenditures without negatively impacting current operations. ● Management has placed a strategic focus on increasing sales with prime customers. ● Sales efforts are focused on the most profitable product lines. ● Blue Star - The Company’s total accounts payable due to Blue Star as of December 31, 2023, was approximately $ 42 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 five years. ● Management finalized a new line of credit with an additional financial institution. ● In October 2023 management finalized an equity raise which resulted in $ 2.5 million in net cash received from investors. F- 13 NOTE 4 – BUSINESS ACQUISITIONS Dangot Computers Ltd On May 3, 2021, the Company and Omniq Technologies Ltd., a wholly owned subsidiary of the Company (“Omniq Technologies”) entered into a share purchase agreement (the “Dangot Share Purchase Agreement”) with Mr. Haim Dangot. Pursuant to the Dangot Share Purchase Agreement, Omniq Technologies agreed to purchase 51 %, or 5,100 shares, of the capital stock of Dangot Computers Ltd., an Israel company (“Dangot”), from Dangot’s sole shareholder, Haim Dangot, for consideration equivalent to 23,740,500 NIS (New Israeli Shekel), which equaled US $ 7.6 million (the “Closing Consideration”), based on the exchange rate at the date of acquisition. The Closing Consideration was paid on July 8, 2021 in the following manner: (a) the Company issued 220,103 shares of its common stock having a share value of $ 2,084 thousand and (b) cash in the amount of $ 5,058 thousand, and (c) $ 600 thousand payable to owner. Haim Dangot also granted Omniq Technologies an irrevocable option to purchase the remaining 4,900 shares, or 49 %, of Dangot’s capital stock (the “Dangot Option”) in the 12-month period following the closing date (the “Dangot Option Period”) at a share purchase price of 465,500 NIS, which equaled US $ 143 thousand, per each 1 % of Dangot’s remaining shares on a fully diluted basis which is the same valuation per share as the purchase price for the 51 %. Effective October 1, 2021 the Company exercised a portion of its option and purchased an additional 26 % of Dangot bringing its ownership to 77 %. The Company paid $ 4,012 thousand to purchase the additional shares. On April 1, 2022, the Company closed on its acquisition of Dangot and exercised the remaining portion of its option to purchase 23.0 % of the capital stock, thereby making Dangot a fully owned subsidiary of the Company. The Company paid $ 3,518 thousand to purchase the additional shares. The Company utilized its working capital and a combination of short- and long-term loans. The following table summarizes the consideration given and the purchase price allocation: SCHEDULE OF RECOGNIZED FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED 0 Purchase Price Consideration (in thousands) Total Consideration Cash payments $ 5,058 Accrued payable to owner 600 Fair value of stock issued (220,103 shares) 2,084 Debt assumed 5,310 Total consideration $ 13,052 Cash $ 666 Accounts receivable 13,470 Inventory 4,616 Other assets 5,392 Property and equipment 638 Goodwill 1,758 Trade name 1,893 Customer relationship 3,139 Other intangible assets 899 Assets acquired $ 32,471 Current liabilities assumed ( 12,911 ) Non-controlling interest ( 6,508 ) Net assets acquired $ 13,052 F- 14 NOTE 5 – CONTRACTS WITH CUSTOMERS The balance of deferred revenues is included in other current and long-term liabilities on the balance sheet. The following table summarizes changes in deferred revenue as of December 31: SCHEDULE OF DEFERRED REVENUE 2023 2022 Beginning balance $ 1,393 $ 2,101 Less amounts recognized during the year ( 945 ) ( 711 ) Add new deferred revenue 1,827 3 Ending Balance $ 2,275 $ 1,393 NOTE 6 – ACCOUNTS RECEIVABLE Accounts receivable consisted of the following as of December 31: SCHEDULE OF ACCOUNTS RECEIVABLE In thousands 2023 2022 Trade accounts receivable $ 19,155 $ 24,348 Less allowance for doubtful accounts ( 501 ) ( 455 ) Total accounts receivable (net) $ 18,654 $ 23,893 Accounts receivable as of December 31, 2023 and 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 balance of accounts receivable for either period. NOTE 7 – INVENTORY Inventory consisted of the following as of December 31: SCHEDULE OF INVENTORY In thousands 2023 2022 Raw materials $ 457 $ 649 Inventory in transit 737 2,004 Finished goods 5,072 6,350 Less allowance for obsolescence ( 238 ) ( 277 ) Total inventories $ 6,028 $ 8,726 NOTE 8 – PROPERTY AND EQUIPMENT The following is a summary of the components of property and equipment as of December 31: SCHEDULE OF PROPERTY AND EQUIPMENT In thousands 2023 2022 Manufacturing and lab equipment $ 673 $ 98 Leasehold improvements 647 521 Software and computer equipment 429 987 Furniture and equipment 232 236 Vehicle 251 274 Property and equipment, Gross Less: accumulated depreciation ( 1,166 ) ( 1,030 ) Property and equipment, Net $ 1,066 $ 1,086 Depreciation expense for the years ended December 31, 2023 and 2022 was approximately $ 464 thousand and $ 324 thousand, respectively. NOTE 9 – GOODWILL AND INTANGIBLE ASSETS Impairment of Goodwill – During the year ended December 31, 2023 the Company experienced significant decline in our stock price and sustained losses from operations. Therefore, we completed a quantitative goodwill impairment analysis as of December 31, 2023. The results of the analysis during the fourth quarter indicated an impairment loss for goodwill related to acquisitions prior to 2021, and we recorded a non-cash impairment of $ 14.7 million. Accumulated impairment of goodwill for the years ended December 31, 2023 and 2022 was $ 14.7 million and $ 0 , respectively. Identifiable intangible assets are stated at cost, net of accumulated amortization. The assets are being amortized on the straight-line method over the estimated useful lives ranging from 3 to 11 years. Amortization expense for the years ended December 31, 2023 and 2022 was $ 1.6 million and $ 1.8 million, respectively Goodwill assets consisted of the following as of December 31: SCHEDULE OF GOODWILL ASSETS CONSISTED In thousands 2023 2022 Goodwill balance, beginning of year $ 16,542 $ 16,453 Impairment loss ( 14,686 ) - Effective foreign exchange rates ( 68 ) 89 Goodwill balance, end of year $ 1,788 $ 16,542 Intangible assets consisted of the following as of December 31: SCHEDULE OF GOODWILL AND INTANGIBLE ASSETS In thousands 2023 2022 Trade names 6,227 6,284 Customer relationships 15,591 15,729 Other intangibles 2,173 2,216 Accumulated amortization ( 18,333 ) ( 16,761 ) Intangibles, net $ 5,658 $ 7,468 The future amortization expense on the trade names, customer relationships, and other intangibles are as follows: SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE In thousands Years ending December 31, 2024 $ 942 2025 776 2026 776 2027 776 2028 659 Thereafter 1,729 Total $ 5,658 F- 15 Goodwill is not amortized but is evaluated for impairment annually or when indicators of a potential impairment are present. The impairment testing of goodwill is performed separately from our impairment testing of intangibles. The annual evaluation for impairment of goodwill and intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. None of the goodwill is deductible for income tax purposes. Purchased intangible assets with finite useful lives are amortized over their respective estimated useful lives (using an accelerated method for customer relationships and trade names) to their estimated residual values, if any. The Company’s finite-lived intangible assets consist of customer relationships, contractor and resume databases, trade names, and internal use software and are being amortized over periods ranging from two to nine years . Purchased intangible assets are reviewed annually to determine if facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, recoverability is assessed by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the rate of amortization is accelerated, and the remaining carrying value is amortized over the new shorter useful life. No impairments were identified or changes to estimated useful lives have been recorded as of December 31, 2023 and 2022. NOTE 10 – CREDIT FACILITIES AND LINE OF CREDIT We maintain operating lines of credit, factoring, and revolving credit facilities with banks and finance companies to provide 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 a credit facility, whereby we could obtain short-term financing by selling and assigning acceptable accounts receivables to BridgeBank. Gross proceeds received during the years ended December 31, 2023 and 2022 were $ 35 million and $ 50 million, respectively. This agreement was terminated in 2023. The annual interest rate with respect to the daily average balance of unpaid advances outstanding under the BFA (computed on a monthly basis) was 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 was collateralized with a senior security interest in certain assets of the Company. The BFA included customary representations and warranties and default provisions for transactions of this type. NOTE 11 – RELATED PARTY NOTES PAYABLE Related party notes payable, consisted of the following as of December 31: SCHEDULE OF NOTES PAYABLE, RELATED PARTIES 2023 2022 In thousands Note payable – Marin $ - $ 180 Note payable – Thomet - 113 Total notes payable, related parties $ - $ 293 The remaining balances were paid in full during the year ended December 31, 2023. For the years ended December 31, 2023 and 2022, the Company recorded interest expense in connection with these notes in the amount of $ 1 thousand and $ 8 thousand, respectively. 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 was payable in 60 monthly principal payments of $ 20 thousand beginning in October 2018. Accrued interest payable as of December 31, 2023 and 2022, was $ 73 thousand and $ 72 thousand, respectively. Accrued interest was 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 was payable in 60 monthly principal payments of $ 13 thousand beginning in October 2018. F- 16 NOTE 12 – OTHER NOTES PAYABLE Other notes payable consists of the following as of December 31, SCHEDULE OF OTHER NOTES PAYABLE In thousands 2023 2022 Notes Payable - other $ 10,461 $ 11,627 Less current portion ( 10,196 ) ( 11,572 ) Long Term Notes Payable $ 265 $ 55 Future maturities of notes payable are as follows for the years ending December 31, 2023: SCHEDULE OF FUTURE MATURITIES OF NOTE PAYABLE In thousands 2024 $ 10,196 2025 265 Total $ 10,461 Other Notes Payable On July 29, 2021, the Company entered into a long-term loan from Leumi Bank totaling 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 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 September 13, 2022, the Company entered into a long-term loan from Hapoalim Bank totaling NIS 3 million, approximately US $ 0.9 million. The note accrues interest at 7.5 % per annum and is payable in 36 instalments of principal and interest over 3 years. During the year ended December 31, 2023, the Company entered into a short-term loan Hapoalim Bank totaling NIS 5.5 million, approximately US $ 1.5 million. The note accrues interest at 7.3 % per annum. During the year ended December 31, 2023, the Company entered into a short-term loan from Bank Leumi totaling NIS 21.5 million, approximately US $ 5.9 million. The note accrues interest at 7.6 % per annum. On September 21, 2023, the Company entered into a long-term loan from Tzameret Mimunim totaling 1.5 M NIS, approximately US $ 393 thousand. The note accrues interest at the Israeli Prime Rate plus 3.5 % which currently equals 9.75 % per annum and is payable in 36 monthly installments. As of December 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. F- 17 NOTE 13 – COMMITMENTS AND CONTINGENCIES Profit Sharing Plan We maintain a contributory profit-sharing plan covering substantially all full-time employees within the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). In 2016, the Safe Harbor element was removed from the plan, so the employer may make a discretionary matching contribution equal to a uniform percentage or dollar amount of participants’ elective deferrals for each Plan Year. The plan also includes a 401(k)-savings plan feature that allows substantially all employees to make voluntary contributions and provides for discretionary matching contributions determined annually by the Board of Directors. For the years ending December 31, 2023 and 2022, the company has elected to match; the total expense was $ 109 thousand and $ 122 thousand, respectively. Operating Leases As of December 31, 2023, we had 5 Operating leases as follows: ● Office space in Salt Lake City UT with monthly payments of $ 24 thousand. As of December 31, 2023, the Company had 32 months remaining on the lease. ● Office space in Anaheim, CA with monthly payments of $ 4 thousand. As of December 31, 2023, the Company had 27 months remaining on the lease. ● Dangot’s corporate offices are currently located at Yad Harutzim 14 Tel-Aviv, Israel. The main corporate office, Yad Harutzim 14, serves as the company’s main building on the 2nd and 3rd floors, used by the management and most of the sales staff, technicians, etc. The corporate office annual lease expense is NIS 784,380 . As of December 31, 2023, the Company had 11 months remaining on the lease. ● We lease office space (Gamdan- 1st floor) for our finance and service department at Yad Harutzim 14 Tel-Aviv, Israel. The lease provides for monthly payments of NIS 18,814 . As of December 31, 2023, the Company had 12 months remaining on the lease. ● We lease office and warehouse space for our products and technical support staff at Rival Street, Tel-Aviv, Israel. The lease provides for monthly payments of NIS 41,200 . AS of December 31, 2023, the Company had 18 months remaining on the lease. F- 18 Other information related to our operating leases is as follows: SCHEDULE OF OTHER INFORMATION RELATED TO OPERATING LEASE In thousands ROU asset - January 1, 2022 $ 3,556 Amortization ( 1,000 ) Effective foreign exchange rates ( 256 ) Increase - ROU asset - December 31, 2022 2,300 Increase 1,164 Decrease ( 437 ) Effective foreign exchange rates ( 273 ) Amortization ( 892 ) ROU asset – December 31, 2023 $ 1,862 In thousands Lease liability – January 1, 2022 $ 3,607 Increase - Effective foreign exchange rates ( 261 ) Amortization ( 1,000 ) Lease liability – December 31, 2022 2,346 Increase 936 Decrease ( 661 ) Effective foreign exchange rates 179 Amortization ( 904 ) Lease liability - December 31, 2023 $ 1,896 As of December 31, 2023, our operating leases had a weighted average remaining lease term of 19.81 months and a weighted average discount rate of 6 %. The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2023: SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES In thousands Year Minimum lease payments 2024 $ 990 2025 707 2026 379 Total 2,076 Less interest ( 180 ) Present value of future minimum lease payments 1,896 Less current obligations ( 885 ) Long term lease obligations $ 1,011 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. This case was settled in February 2024. F- 19 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 government 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 beneficiary 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 14 – STOCKHOLDERS’ EQUITY PREFERRED STOCK Series A As of December 31, 2023 and 2022, there were 2,000,000 Series A preferred shares authorized and zero Series A preferred shares outstanding. The board of directors had previously set the voting rights for the preferred stock at 1 share of preferred to 13 common shares . Series B As of December 31, 2023 and 2022, there was one preferred share authorized and zero preferred shares outstanding. Series C As of December 31, 2023 and 2022, there were 3,000,000 Series C Preferred Shares (“Series C”) authorized with 502,000 and 544,500 issued and outstanding, respectively. The Series C shares have preferential rights above common shares and the Series B Preferred Shares, are 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 December 31, 2023 and 2022, the accrued dividends on the Series C Preferred Stock was $ 181 thousand and $ 153 thousand, respectively. 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’s Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain 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 Plan. On October 23, 2022 19,000 stock options were granted to employees as part of the Plan. No shares were issued under the Plan in 2023. In December 2015, our Board of Directors approved the OMNIQ’s Employee Stock Purchase Plan (the “ESPP”). For the years ending December 31, 2023 and 2022, employees purchased 14,838 ($ 31 thousand) shares and 7,025 ($ 37 thousand) shares of commons stock. On October 5, 2023, OmniQ Corp. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity LLC, as representatives (the “Representatives”) of the several underwriters named therein (collectively, the “Underwriters”), relating to the issuance and sale (the “Offering”) of 2,775,000 shares of the Company’s common stock, par value $ 0.001 per share, at a price to the public of $ 1.00 per share (the “Underwritten Shares”) and pre-funded warrants (the “Pre-Funded Warrants”) to purchase 225,000 shares of the Company’s common stock at a price to the public of $ 0.999 per Pre-Funded Warrant. Under the terms of the Underwriting Agreement, the Underwriters have agreed to purchase the Underwritten Shares from the Company at a price of $ 1.00 per share and the Pre-Funded Warrants at a price of $ 0.999 per Pre-Funded Warrant. The Company also granted the Underwriters an option exercisable for 45 days from the date of the Underwriting Agreement to purchase up to an additional 450,000 shares of common stock solely for the purpose of covering over-allotments (together with the Underwritten Shares, the “Shares”). All of the Shares and Pre-Funded Warrants in the Offering are being sold by the Company. The Company also issued warrants to the Representative (the “Representative’s Warrants”), exercisable to purchase 140,000 shares of common stock, at an exercise price of $ 1.25 per share. The gross proceeds from the Offering were approximately $ 3.0 million before deducting underwriting discounts and commissions and other offering expenses payable by the Company and assuming no exercise of the Underwriters’ option to purchase additional shares. F- 20 Warrants and Stock Options The valuation assumptions used to determine the fair value of each option and warrant awarded during the year ended December 31, 2023 are as follows: expected stock price volatility 126.44 %, expected term in years 3.25 , and risk-free interest rate 4.73 %. The estimated fair value of the warrants were $ .55 . The valuation assumptions used to determine the fair value of each option and warrant awarded during the year ended December 31, 2022 are as follows: expected stock price volatility ranged from 104.33 % to 126.44 %, expected term in years 3.25 , and risk-free interest rate ranged from 1.76 % to 4.52 %. No warrants were exercised during the years ended December 31, 2023 or 2022. The following table summarizes information about warrants granted during the years ended December 31: SCHEDULE OF WARRANTS ACTIVITY 2023 2022 Number of Warrants Weighted Average Exercise Price Number of Warrants Weighted Average Exercise Price Balance, beginning of year 1,481,734 $ 7.34 1,378,929 $ 7.40 Warrants granted 225,000 1.00 112,805 6.59 Warrants expired ( 100,000 ) 10.00 ( 10,000 ) 8.00 Warrants exercised - - - - Balance, end of year 1,606,734 6.28 1,481,734 7.34 Exercisable warrants 1,359,234 $ 7.16 1,424,234 $ 7.38 Outstanding warrants as of December 31, 2023 are as follows: SCHEDULE OF OUTSTANDING WARRANTS Range of Exercise Prices Weighted Average Residual Life Span (in years) Outstanding Warrants Weighted Average Exercise Price Exercisable Warrants Weighted Average Exercise Price 1.00 4.78 225,000 $ 1.00 - $ 1.00 5.91 3.33 40,000 5.91 25,000 5.91 6.95 3.23 42,805 6.95 42,805 6.95 7.00 1.62 877,500 7.00 870,000 7.00 7.50 2.68 250,000 7.50 250,000 7.50 7.70 3.52 171,429 7.70 171,429 7.70 1.00 to 10.00 2.68 1,606,734 $ 6.28 1,359,234 $ 7.16 F- 21 Warrants outstanding have the following expiry date and exercise prices as of the years ended December 31: SCHEDULE OF WARRANTS OUTSTANDING, EXPIRY DATE AND EXERCISE PRICES Expiry Date Exercise Prices 2023 2022 May 18, 2023 10.00 - 50,000 October 14, 2023 10.00 - 50,000 October 06, 2024 7.00 847,500 847,500 September 01, 2025 7.50 83,334 83,334 June 04, 2026 7.50 83,333 83,333 July 7, 2026 7.70 171,429 171,429 December 04, 2027 7.50 83,333 83,333 March 25, 2027 6.95 42,805 42,805 May 1, 2027 7.00 30,000 30,000 May 1, 2027 5.91 40,000 40,000 October 11, 2028 1.00 225,000 - 1,606,734 1,481,734 We have a stock option plan whereby the Board of Directors may grant directors, officers, employees, or consultants of the Company options to acquire common shares. The Board of Directors has the authority to determine the terms, limits, restrictions and conditions, interpret the plan, and make all decisions relating thereto. The current plan was adopted by the board of directors in December 2021 with a maximum of 1,118,856 shares to be issued. The option exercise price is established by the Board of Directors and may not be lower than the market price of the common shares at the time of grant. The options may be exercised during the option period determined by the Board of Directors, which may vary, but will not exceed ten years from the date of the grant. For options exercised during the year ended December 31, 2023, the difference between the fair value of the Common Stock issued and the respective exercise price was $ 373 thousand. As of December 31, 2023, the intrinsic value for vested stock options was $ 0 . For options exercised during the year ended December 31, 2022, the difference between the fair value of the Common Stock issued and the respective exercise price was $ 369 thousand. As of December 31, 2022, the intrinsic value for vested stock options was $ 477 thousand. As of December 31, 2023 the total compensation cost related to nonvested awards not yet recognized was $ 355 thousand. The weighted average period over which it is expected to be recognized is 2 months. Stock Options - The following table summarizes information about stock options granted during the years ended December 31, SCHEDULE OF STOCK OPTIONS GRANTED 2023 2022 Number of Stock Options Weighted Average Exercise Price Number of Stock Options Weighted Average Exercise Price Balance, beginning of year 2,190,583 $ 5.00 1,559,300 $ 4.58 Stock options granted - - 841,500 - Stock options expired ( 287,750 ) - - - Stock options cancelled, forfeited ( 208,574 ) - ( 9,000 ) - Stock options exercised ( 235,426 ) - ( 201,217 ) - Balance, end of year 1,458,833 4.97 2,190,583 5.00 Exercisable stock options 1,354,896 $ 4.94 1,420,312 $ 4.96 F- 22 Stock options outstanding at the end of the year have the following expiry date and exercise prices as of December 31, SCHEDULE OF STOCK OPTIONS, EXPIRY DATE AND EXERCISE PRICES Expiry Date Exercise Prices 2023 2022 February 28, 2023 5.00 - 20,000 March 05, 2023 2.40 - 242,000 July 31, 2023 5.00 - 127,500 October 31, 2023 4.40 - 10,000 November 30, 2023 5.40 - 120,250 November 20, 2024 10.00 - 125,000 April 20, 2025 4.20 10,000 10,000 March 1, 2027 5.14 563,500 648,500 March 1, 2027 5.65 140,000 140,000 May 1, 2027 5.90 30,000 30,000 October 31, 2027 5.98 17,000 19,000 September 30, 2030 4.40 318,333 318,333 September 30, 2030 4.84 380,000 380,000 1,458,833 2,190,583 We recorded stock compensation expense relating to the vesting of stock options and warrants as follows for the years ended December 31, SCHEDULE OF STOCK COMPENSATION EXPENSE 2023 2022 In thousands Stock Compensation $ 273 $ 1,321 Stock Option vesting 1,682 1,852 Total $ 1,955 $ 3,173 NOTE 15 – RELATED PARTY TRANSACTIONS In February 2020 we amended the consulting agreement with Mr. Carlos J. Nissensohn, a principal shareholder of the Company and a family member of a director and former officer of the Company. The terms and condition of the contract are as follows: ● Monthly Fee: a monthly fee of $ 30,000 . ● Debt Financing Fee: If the Company procures debt financing during the term of this Agreement and without any equity component, then the Consultant, who shall have coordinated the transaction through which the Company procured the debt financing, shall be entitled to 5% of the gross funds raised; however if the Company is required to pay a success fee to another external entity, the Consultant shall be entitled to only 3% of the gross funds raised. Consultant’s right to receive such fee shall remain in force for a period of 24 months immediately following the termination of this Agreement. ● Equity Financing Fee: If the Company procures equity financing in an amount equal to or greater than $2,000,000 during the term of this Agreement, then the Consultant shall be entitled to a success fee of $60,000 upon the Company’s receipt of at least $2,000,000. Consultant’s right to receive such fee shall remain in force for a period of 24 months immediately following the termination of this Agreement. If the Company procures equity financing in an amount equal to or greater than $4,000,000 during the term of this Agreement, then the Consultant shall be entitled to a success fee of $180,000 upon the Company’s receipt of at least $4,000,000. Consultant’s right to receive such fee shall remain in force for a period of 24 months immediately following the termination of this Agreement. If the Company procures equity financing in an amount equal to or greater than $6,000,000 during the term of this Agreement, then the Consultant shall be entitled to a success fee to be determined by the Board of Directors but not less than $250,000 upon the Company’s receipt of at least $6,000,000. Consultant’s right to receive such fee shall remain in force for a period of 24 months immediately following the termination of this Agreement. ● Uplisting to National Exchange. If the Consultant assists in the planning and monitoring of a successful listing or offering of securities by the Company, or any subsidiary thereof, on the NASDAQ or New York Stock Exchange markets and such a listing or offering shall be consummated within 24 months as of the date hereof, then the Consultant shall be entitled to a $ 80,000 onetime payment which shall be paid on the 1st day that the OMNIQ shares become traded on such national exchange. ● M&A Fee: ○ If the Company closes any M&A transaction with a third party target during the term of this Agreement, then the Consultant shall be entitled to a success fee in the amount equal to five percent ( 5 %) of the total transaction price, in any combination of cash and shares to be determined by OMNIQ, to be paid to the Consultant within two (2) weeks of the closing of such transaction. In the event an external entity is entitled to a success fee from the same M&A transaction, the Consultant’s fee shall be reduced to no less than two and one-half percent ( 2.5 %) and such amount reduced from Consultant’s fee shall be reallocated to the fee due to such external entity. ○ If the Company closes any M&A transaction in which it is the acquired company, then the Consultant shall be entitled to a success fee in the amount equal to two percent ( 2 %) of the total transaction price, in any combination of cash and shares to be determined by the Company, to be paid to the Consultant within two (2) weeks of the closing of such transaction. ○ The fees described in this Section 2(e) shall also apply to any M&A transaction that closes after the term of this Agreement but which the Consultant substantially contributed to prior to the termination of this Agreement. ● Foreign Sales Fee: Consultant shall be entitled to a fee equal to five percent ( 5 %) of the year-to-year growth in the Company’s foreign sales of its products and services during the term of the Agreement. Such fee shall be paid within a reasonable time after the end of each fiscal year. If this Agreement is terminated prior to the end of a fiscal year, then the Consultant shall be entitled to receive a pro-rated amount of the sales growth realized by the Company that year. F- 23 NOTE 16 – CONCENTRATION AND GEOGRAPHIC DATA For the year ended December 31, 2023, no customer accounted for more than 10 % of the Company’s revenues. For the year ended December 31, 2022, one customer accounted for 30 % of the Company’s revenues. Information about Geographic Areas Revenues by geography are based on the shipping addresses of our customers. The following tables set forth revenues by geographic area for the years ended December 31, SCHEDULE OF REVENUES BY GEOGRAPHIC AREA In thousands 2023 2022 Revenues: United States $ 33,666 $ 49,236 Israel 35,804 42,217 Russia 9,215 - Rest of the world 2,508 9,305 Total revenues $ 81,193 $ 100,758 The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in the countries in which the Company operates. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds, export duties, quotas and embargoes, domestic and international customs and tariffs, changing taxation policies, foreign exchange restrictions, political conditions, and governmental regulations. We are closely monitoring developments in the war between Israel and Hamas that began on October 7, 2023 including potential impacts to The Companies business, customers, suppliers, employees, and operations in Israel, the Middle East and elsewhere. At this time, impacts to The Company are expected to be minimal but is subject to change given the volatile nature of the situation. NOTE 17 – INCOME TAX For the year ended December 31, 2023, the Company has $ 741 thousand of current income tax expense (US State & Local and Foreign) and $ 221 thousand deferred income tax benefit. The tax effect of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows as of December 31, SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES In thousands Deferred tax assets 2023 2022 Reserves and deferred revenue $ 1,213 $ 411 163(j) Limitation 3,165 2,260 Foreign deferred tax assets 356 135 Net operating loss 10,731 8,353 Total gross deferred tax assets 15,465 11,158 Less: Valuation Allowance ( 14,947 ) ( 10,890 ) Net deferred tax assets 518 269 Deferred tax liabilities Depreciation ( 162 ) ( 134 ) Total deferred tax liabilities ( 162 ) ( 134 ) Net deferred tax assets $ 356 $ 135 F- 24 Components of net deferred tax assets, including a valuation allowance, are as follows as of December 31: SCHEDULE OF DEFERRED TAX ASSETS AND VALUATION ALLOWANCES 2023 2022 Net deferred tax assets $ 15,303 $ 11,025 Valuation allowance ( 14,947 ) ( 10,890 ) Total deferred tax assets $ 356 $ 135 The valuation allowance for deferred tax assets as of December 31, 2023 and 2022 was $ 14.9 million and $ 10.9 million, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management has recorded a 100% valuation allowance, against its U.S. net deferred tax assets, since Management believes it is more likely than not that it will not be realized at the date of this statement. The Company will continue to monitor the potential utilization of this asset. Should factors and evidence change to aid in this assessment, a potential adjustment to the valuation allowance in future periods may occur. The Company records any penalties and interest as a component of operating expenses. The reconciliation between statutory rate and effective rate is as follows as of December 31,: SCHEDULE OF RECONCILIATION OF STATUTORY RATE AND EFFECTIVE TAX RATE 2023 2022 Federal statutory tax rate 21.00 % 21.00 % State taxes (.03 )% ( 0.07 )% Foreign income taxes ( 5.79 )% ( 4.45 )% Change in valuation allowance ( 6.66 )% ( 16.13 )% Return to provision adjustments ( 0.00 )% (.03 )% Goodwill amortization ( 10.31 )% (.76 )% Effective tax rate ( 1.79 )% (.44 )% The Company reported no uncertain tax liability as of December 31, 2023 and expects no significant change to the uncertain tax liability over the next twelve months. The Company’s 2020, 2021, 2022, and 2023 federal and state income tax returns are open for examination by the applicable governmental authorities. As of December 31, 2023, the Company had a net operating loss (NOL) carryforward of approximately $ 43.8 million. A portion of the NOL carryforward begins to expire in 2028. Under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC Section 382”), a corporation that undergoes an “ownership change” is subject to limitations on its use of pre-change NOL carryforwards to offset future taxable income. Within the meaning of IRC Section 382, an “ownership change” occurs when the aggregate stock ownership of certain stockholders (generally 5% shareholders, applying certain look-through rules and aggregation rules which combine unrelated shareholders that do not individually own 5% or more of the corporation’s stock into one or more “public groups” that may be treated as 5-percent shareholder) increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). In general, the annual use limitation equals the aggregate value of common stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The Company has not completed a study as to whether there is a 382 limitation on its NOLs that will limit or possibly eliminate the use of its NOLs in the future. Company’s Management has recorded a 100% valuation allowance on the entire NOL as it believes that it is more likely than not that the deferred tax asset associated with the NOLs will not be realized regardless of whether or not an “ownership change” has occurred. NOTE 18 – SUBSEQUENT EVENTS On January 18, 2024, the Company’s wholly owned subsidiary, Quest Marketing, Inc. (“Quest”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Prestige Capital Finance, LLC (“Prestige”), in which Quest has sold, transferred and assigned all of its rights, title and interest to specific accounts receivable owed to Quest. The maximum outstanding balance of Quest to Prestige shall be $ 7.5 million. In addition, Prestige’s purchase from Quest shall be at a discount. The discount shall be based on the number of days an account is outstanding. The discount fee shall be as follows: If paid within 30 days a discount fee of 1.50% plus an additional .50% for each 10-day period thereafter up to a maximum of 90 days. On January 30, 2024, OMNIQ Corp. (the “Company’), its wholly owned subsidiary, Dangot Computers Ltd. (“Dangot”), CodeBlocks Ltd. (CodeBlocks”). and CodeBlock’s owners, Alina Lifshits and Erez Attia entered into a Share Purchase Agreement (the “Purchase Agreement”) pursuant to which Dangot, acquired all of the capital stock of CodeBlocks in exchange for NIS 4,666,664 (approximately US $ 1,275,044 based on today’s exchange rate). The consideration is payable in seven equal installments with the final payment due on January 11, 2025. The purchase Agreement closed on February 1, 2024. F- 25 EXHIBIT INDEX Exhibit No. Description (a) Exhibits. 3.1 Form of Certificate of Amendment to the Certificate of Incorporation, as amended, dated November 18, 2019 incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 18, 2019. 3.2 Amendment to Certificate of Designation of Series C Preferred Stock on June 17, 2016, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2016. 3.3 Form of Certificate of Amendment to the Certificate of Incorporation, as amended, of OMNIQ Corp., dated September 30, 2020, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 2, 2020. 4.1 $12,492,136.51 Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and their subsidiaries and/or affiliates, jointly and severally, to ScanSource, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 22, 2016. 4.2* Description of Securities 4.3 $483,173.60 CAD Secured Promissory Note, from Quest Solution, Inc., Bar Code Specialties, Inc., Quest Marketing, Inc., Quest Solution Canada Inc., Quest Exchange Ltd. and their subsidiaries and/or affiliates, jointly and severally, to ScanSource, Inc., incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 22, 2016. 4.4 Form of Warrant, incorporated by referenced to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 9, 2019. 4.5 Form of Placement Agent Warrant, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on April 9, 2019. 10.1 Employment Agreement by and between the Company and Shai Lustgarten dated February 17, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 6, 2017. 10.2 Modification Agreement by and between the Company and Shai Lustgarten dated February 17, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 6, 2017. 10.14 Consulting Agreement by and between the Company and Carlos J Nissensohn dated August 2, 2017 incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 4, 2017. 10.15 Consulting Agreement by and between the Company and YES-IF dated September 8, 2017, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2017. 10.17 Employment Agreement by and between the Company and Benjamin Kemper dated October 2, 2017, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2017. 10.24 Employment Agreement by and between the Company and David Marin dated February 28, 2018. 2018 Equity Incentive Plan incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on March 12, 2018. 27 10.36 Neev Nissenson Employment Agreement, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019. 10.37 Asset Purchase Agreement, dated February 28, 2020, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020. 10.38 Shai Lustgarten Employment Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020. 10.39 Consulting Agreement, dated as of February 27, 2020, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020. 10.40 Asset Purchase Agreement dated February 28, 2020, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020. 10.41 Employment Agreement with Shai Lustgarten on September, 2019, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019. 10.42 Consulting Agreement with Carlos J. Nissensohn on September, 2019, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2019. 10.43 2023 Equity Incentive Plan, incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A 10.44 Asset Purchase Agreement dated January 18, 2024, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 24, 2024 10.45 Share Purchase Agreement dated January 30, 2024, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2024 14.1* Code of Ethics 21.1* Subsidiaries of the Registrant 23.1* Consent of Independent Registered Public Accounting Firm 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 Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) 32.2* Certification of our Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) 99.4* Clawback Policy 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 (embedded within the Inline XBRL document) * Filed herewith. ITEM 16. NONE. 28