OMNIQ Corp. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2024 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________ to__________ Commission File Number: 001-40768 OMNIQ Corp. (Exact name of registrant as specified in its charter) Delaware 20-3454263 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1865 West 2100 South Salt Lake City , UT 84119 (Address of principal executive offices) (Zip Code) (801) 242-7272 (Registrant’s telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Ticker symbol(s) Name of each exchange on which registered Common Stock, $0.001 par value OMQS The Nasdaq Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ (Do not check if a smaller reporting company) Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 10,692,891 shares of common stock, $0.001 par value, as of May 2, 2024. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION F-1 ITEM 1. FINANCIAL STATEMENTS F-1 CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2024 AND DECEMBER 31, 2023 F-1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023 F-2 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 F-3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023 F-4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS F-5 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 6 ITEM 4. CONTROLS AND PROCEDURES 6 PART II - OTHER INFORMATION 7 ITEM 1. LEGAL PROCEEDINGS. 7 ITEM 1A. RISK FACTORS. 7 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 7 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 7 ITEM 4. MINE SAFETY DISCLOSURES. 7 ITEM 5. OTHER INFORMATION. 7 ITEM 6. EXHIBITS. 8 SIGNATURES 9 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OMNIQ CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) March 31, 2024 December 31, 2023 As of (In thousands, except share and per share data) March 31, 2024 December 31, 2023 ( UNAUDITED ) ASSETS Current assets Cash and cash equivalents $ 881 $ 1,678 Accounts receivable, net 18,429 18,654 Inventory 5,676 6,028 Prepaid expenses 806 969 Other current assets 319 25 Total current assets 26,111 27,354 Property and equipment, net of accumulated depreciation of $ 1,782 and $ 1,030 respectively 981 1,066 Goodwill 2,891 1,788 Trade name, net of accumulated amortization of $ 4,888 and $ 4,564 , respectively 1,312 1,377 Customer relationships, net of accumulated amortization of $ 11,950 and $ 11,001 , respectively 3,575 3,777 Other intangibles, net of accumulated amortization of $ 1,675 and $ 2,216 , respectively 478 504 Right of use lease asset 1,548 1,862 Other assets 1,965 1,758 Total Assets $ 38,861 $ 39,486 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 57,145 $ 56,741 Line of credit 391 240 Accrued payroll and sales tax 2,311 1,537 Notes payable – current portion 9,451 10,196 Lease liability – current portion 758 885 Other current liabilities 2,430 3,106 Total current liabilities 72,486 72,705 Long term liabilities Accrued interest and accrued liabilities, related party 73 73 Notes payable, less current portion 1,392 265 Lease liability, less current portion 820 1,011 Other long-term liabilities 619 452 Total liabilities 75,390 74,506 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 shares issued and outstanding, respectively 1 1 Preferred stock 1 1 Common stock; $ 0.001 par value; 15,000,000 shares authorized; 10,690,211 and 10,675,802 shares issued and outstanding, respectively. 11 11 Additional paid-in capital 78,639 78,340 Accumulated (deficit) ( 115,972 ) ( 113,923 ) Accumulated other comprehensive income 792 551 Total OmniQ stockholders’ equity (deficit) ( 36,529 ) ( 35,020 ) Total liabilities and equity (deficit) $ 38,861 $ 39,486 The accompanying unaudited notes should be read in conjunction with these unaudited condensed consolidated financial statements. F- 1 OMNIQ CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (In thousands, except share and per share data) 2024 2023 For the Three months ended March 31, (In thousands, except share and per share data) 2024 2023 Revenues $ 18,317 $ 27,821 Cost of goods sold 13,259 22,099 Gross profit 5,058 5,722 Operating expenses Research & Development 405 423 Selling, general and administrative 5,565 6,766 Depreciation 116 108 Amortization 231 436 Total operating expenses 6,317 7,733 Loss from operations ( 1,259 ) ( 2,011 ) Other income (expenses): Interest expense ( 917 ) ( 938 ) Other (expenses) income 31 ( 751 ) Total other expenses ( 886 ) ( 1,689 ) Net Loss Before Income Taxes ( 2,145 ) ( 3,700 ) Provision for Income Taxes Current 47 193 Total Provision for Income Taxes 47 193 Net Loss $ ( 2,098 ) $ ( 3,507 ) Foreign currency translation adjustment 241 457 Comprehensive loss $ ( 1,857 ) $ ( 3,050 ) Reconciliation of net loss to net loss attributable to common shareholders Net loss $ ( 2,098 ) $ ( 3,507 ) Less: Dividends attributable to non-common stockholders’ of OmniQ Corp ( 7 ) ( 8 ) Net loss attributable to common stockholders’ of OmniQ Corp $ ( 2,105 ) $ ( 3,515 ) Net (loss) per share - basic attributable to common stockholders’ of OmniQ Corp $ ( 0.20 ) $ ( 0.45 ) Weighted average number of common shares outstanding - basic and diluted 10,688,340 7,749,870 The accompanying unaudited notes should be read in conjunction with these unaudited condensed consolidated financial statements. F- 2 OMNIQ CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED) (In thousands) Shares Amount Shares Amount Capital Deficit Income (Loss) (Deficit) Series C Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders’ Equity (In thousands) Shares Amount Shares Amount Capital Deficit Income (Loss) (Deficit) Balance, December 31, 2022 544 $ 1 7,714 $ 8 $ 73,714 $ ( 84,460 ) $ 211 $ ( 10,526 ) Dividend on Class C Shares - - - - - ( 8 ) - ( 8 ) ESPP Stock Issuance - - 2 - 10 - - 10 Stock and Warrant issued for services - - 10 - 45 - - 45 Stock-based compensation – options, warrants, issuances - - - - 516 - - 516 Exercise of stock options and warrants - - 156 - 173 - - 173 Conversion of shares ( 42 ) - 2 - - - - - Cumulative Translation Adjustment - - - - - - 457 457 Net (loss) income - - - - - ( 3,507 ) - ( 3,507 ) Balance, March 31, 2023 502 $ 1 7,884 8 74,458 ( 87,975 ) 668 $ ( 12,840 ) Balance, 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 ) Dividend on Class C Shares - - - - - ( 7 ) - ( 7 ) ESPP Stock Issuance - - 15 - 6 - - 6 Stock-based compensation – options, warrants, issuances - - - - 293 - - 293 Acquisition of Codeblocks - - - 56 - 56 Cumulative Translation Adjustment - - - - - - 241 241 Net (loss) income - - - - - ( 2,098 ) - ( 2,098 ) Balance, March 31, 2024 502 $ 1 10,690 $ 11 $ 78,639 $ ( 115,972 ) $ 792 $ ( 36,529 ) Balance 502 $ 1 10,690 $ 11 $ 78,639 $ ( 115,972 ) $ 792 $ ( 36,529 ) The accompanying unaudited notes should be read in conjunction with these condensed unaudited consolidated financial statements. F- 3 OMNIQ CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, (UNAUDITED) (In thousands) 2024 2023 Cash flows from operations Net loss $ ( 2,098 ) $ ( 3,507 ) Adjustments to reconcile net loss to net cash provided by operating activities: Stock-based compensation 293 516 Stock and warrant issued for services - 45 Depreciation and amortization 347 544 Amortization of ROU asset 299 281 Changes in operating assets and liabilities: Accounts receivable ( 508 ) ( 2,228 ) Prepaid expenses 181 ( 384 ) Inventory 640 ( 395 ) Other assets 242 104 Accounts payable and accrued liabilities 696 3,954 Accrued interest and accrued liabilities, related party - 1 Accrued payroll and sales taxes payable 795 91 Lease liability ( 302 ) ( 282 ) Deferred tax assets, net ( 719 ) ( 37 ) Other liabilities ( 489 ) 8 Net cash used in operating activities ( 623 ) ( 1,289 ) Cash flows from investing activities Purchase of property and equipment ( 48 ) ( 341 ) Net cash used in investing activities ( 48 ) ( 341 ) Cash flows from financing activities Proceeds from ESPP stock issuance 6 10 Proceeds from exercise of options and warrants - 173 Payments on notes/loans payable ( 1,133 ) ( 544 ) Proceeds from draw on line of credit 156 3,361 Net cash (used in) provided by financing activities ( 971 ) 3,000 Net change in cash and cash equivalents ( 1,642 ) 1,370 Effect of foreign exchange rates on cash and cash equivalents 845 549 Cash and cash equivalents at beginning of period 1,678 1,311 Cash and cash equivalents at end of period $ 881 $ 3,230 Non-cash activities: Declared dividends payable $ 7 $ 8 Net assets acquired in business combination $ 1,284 $ - Supplemental disclosure of cash flow information: $ Cash paid for interest $ 916 $ 938 Cash paid for taxes $ - $ - The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements. F- 4 OMNIQ CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements include the accounts of OMNIQ Corp, and its wholly owned subsidiaries, referred to herein as “we,” “us,” “OMNIQ,” or the “Company.” Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in the 2023 Form 10-K. During the three-month period ended March 31, 2024, there were no significant changes to those accounting policies. Net Loss Per Common Share Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net loss per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic EPS for the three-months ended March 31, 2024, and 2023 were 10,688,340 and 7,749,870 , respectively. Diluted net loss per share of common stock is the same as basic net loss per share of common stock because the effects of potentially dilutive securities are antidilutive. The following table sets forth the potentially dilutive securities excluded from the computation of diluted net loss per share because such securities have an anti-dilutive impact due to losses reported as of: SCHEDULE OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION OF EARNING PER SHARE March 31, 2024 March 31, 2023 Options to purchase common stock 1,372,333 1,907,583 Warrants to purchase common stock 1,606,734 1,481,734 Potential shares excluded from diluted net loss per share 2,979,067 3,389,317 F- 5 Reclassifications and Comparability Certain revenue and cost of goods sold amounts in the financial statements of the prior period have been reclassified to be presented on a net basis rather than a gross to conform to the current period’s presentation for comparative purposes. The total amount reclassified from cost of goods sold to revenue, as a reduction, was $ 225 thousand. This had no effect on total assets or net income. NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES The accompanying condensed 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 $ 46.4 million as of March 31, 2024 ● Accumulated deficit of $ 116 million as of March 31, 2024 ● Multiple years of losses from operations 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 March 31, 2024, was approximately $ 45 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. NOTE 3 – CONCENTRATIONS For the three-months ended March 31, 2024, and 2023, one customer accounted for 25 % and two customers accounted for 30 %, respectively, of the Company’s consolidated revenues. Accounts receivable at March 31, 2024 and December 31, 2023 are made up of trade receivables due from customers in the ordinary course of business. No customer accounted for more than 10 % of the outstanding receivables as of March 31, 2024, or December 31, 2023. For the three months ended March 31, 2024, and the year ended December 31, 2023 two vendors made up 49 %, respectively, of our purchases. F- 6 NOTE 4 – BUSINESS COMBINATIONS CodeBlocks LTD On January 30, 2024, OMNIQ’s wholly owned subsidiary, Dangot Computers Ltd. (“Dangot”), entered into a Share Purchase Agreement (the “Purchase Agreement”) with CodeBlocks Ltd. (CodeBlocks”) and CodeBlocks’ owners, Alina Lifshits and Erez Attia pursuant to which Dangot, acquired all of the capital stock of CodeBlocks in exchange for NIS 4,666,664 (approximately US $ 1,275,044 ). The consideration is payable in seven equal installments with the final payment due on January 11, 2025. The note has no explicit interest rate so the Company used an implicit interest rate of 8 %; therefore the present value for the acquisition was NIS 4,356,720 , approximately $ 1,190,360 . The purchase Agreement closed on February 1, 2024. As of March 31, 2024, the total amount outstanding is NIS 4.4 million, approximately $ 1 million USD, and is presented on the balance sheet in short- and long-term notes payable. Neway Distribution LTD On February 15, 2024, Dangot divested its 50 % equity interest in Neway Distribution LTD for consideration of approximately NIS 1 million—which was the carrying amount of the equity investment on Dangot’s balance sheet as of the date of the sale. NOTE 5 – INVENTORY Inventory consisted of the following as of: SCHEDULE OF INVENTORY In thousands March 31, 2024 December 31, 2023 Raw materials $ 424 $ 457 Inventory in transit 608 737 Finished goods (less allowance) 4,644 4,834 Total inventories $ 5,676 $ 6,028 NOTE 6 – CREDIT FACILITIES AND LINE OF CREDIT We maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us with working capital. On March 25, 2022, we entered into a Business Finance Agreement (the “BFA”) with BridgeBank a division of Western Alliance Bank (“BridgeBank”) to establish the sale of accounts receivable credit facility, whereby we may obtain short-term financing by selling and assigning acceptable accounts receivables to BridgeBank. Pursuant to the BFA, the outstanding principal amount of advances made by BridgeBank at any time shall not exceed $ 8.5 million. BridgeBank reserves and withholds to 15 % of the face amount of each account purchased in a reserve account. This agreement was terminated in November 2023. The annual interest rate with respect to the daily average balance of unpaid advances outstanding under the BFA (computed on a monthly basis) is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus 1.5%, plus a monthly fee equal to 0.15% of the average outstanding balance. The BFA credit facility is collateralized with a senior security interest in certain assets of the Company. The BFA includes customary representations and warranties and default provisions for transactions of this type. On January 18, 2024, the Company’s wholly owned subsidiary, Quest Marketing, Inc. (“Quest”) entered into a 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. The discount fee starts at 1.5 % and increases based on the age of the outstanding receivables. The balance as of March 31, 2024, was $ 0 . NOTE 7 – RELATED PARTY NOTES PAYABLE F- 7 NOTE 8 – OTHER NOTES PAYABLE SCHEDULE OF OTHER NOTES PAYABLE (In thousands) March 31, 2024 December 31, 2023 Note payable other 9,818 10,461 Acquisition payable 1,025 - Total 10,843 10,461 Less current portion ( 9,451 ) ( 10,196 ) Long-term notes payable $ 1,392 $ 265 Notes Payable Other 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. NOTE 9 – OTHER LIABILITIES SCHEDULE OF OTHER LIABILITIES (In thousands) March 31, 2024 December 31, 2023 Other vendor payable $ 803 $ 803 Dividend payable 189 182 Others 2,057 2,573 Total other liabilities 3,049 3,558 Less Current Portion ( 2,430 ) ( 3,106 ) Total long-term other liabilities $ 619 $ 452 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 March 31: SCHEDULE OF DEFERRED REVENUE 2024 2023 Beginning balance $ 2,275 $ 1,393 Less amounts recognized during the year ( 1,352 ) ( 945 ) Add new deferred revenue 803 1,827 Ending Balance $ 1,726 $ 2,275 F- 8 NOTE 10 – OTHER INCOME For the three months ended March 31, 2024, the Company received government relief funds in the amount of approximately NIS 1.7 million or US $ 609 thousand. NOTE 11 – STOCKHOLDERS’ EQUITY PREFERRED STOCK Series A As of March 31, 2024, there were 2,000,000 Series A preferred shares designated and no Series A preferred shares outstanding. The board of directors of the Company (the “Board”) had previously set the voting rights for the Series A preferred stock at 1 share of preferred to 250 common shares. Series B As of March 31, 2024, there was 1 preferred share designated and no preferred shares outstanding. Series C As of March 31, 2024, there were 3,000,000 Series C Preferred Shares (“Series C”) authorized with 502,000 issued and outstanding. The Series C shares have preferential rights above common shares and the Series B Preferred Shares and is entitled to receive a quarterly dividend at a rate of $ 0.06 per share per annum and have a liquidation preference of $ 1 per share. Series C shares outstanding are convertible into common stock at the rate of 20 preferred shares to one share of common stock. As of March 31, 2024, the accrued dividends on the Series C Preferred Stock was $ 189 thousand. The Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of common stock) in the event that the Company’s common stock has a closing price of $30 per share for 20 consecutive trading days. COMMON STOCK In October 2021, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain in the employ of and attract new employees, directors, officers, consultants, advisors, and employees to the Company. Pursuant to the Plan, 1,118,856 shares of the Company’s common stock, par value $ 0.001 (the “Shares”), were set aside and reserved for issuance. The Plan was approved by our stockholders at the December 2021, shareholders’ meeting. No options were issued in the three months ended March 31, 2024 or 2023. In December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the three months ending March 31, 2024, employees purchased 14,409 shares or $ 6 thousand of common stock. NOTE 12 – LITIGATION The company is not a party to any pending legal proceeding in which it is defending against any claims of material significance. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer or affiliate of the Company, any owner of record or beneficially of more than five percent of the Company’s Common Stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding. NOTE 13 – SUBSEQUENT EVENTS On April 8, 2024, stockholders approved the amendment of the Company’s Certificate of Incorporation to increase the amount of authorized common stock to 35,000,000 shares. F- 9 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by, or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs, and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following: ● Our ability to raise capital when needed and on acceptable terms and conditions; ● Our ability to manage credit and debt structures from vendors, debt holders, and secured lenders. ● Our ability to manage the growth of our business through internal growth and acquisitions; ● Competitive pressures; ● Our ability to attract and retain management, and to integrate and maintain technical information and management information systems. ● Compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our 2023 Form 10-K and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our website at www.omniq.com. Introduction We use patented and proprietary artificial intelligence (AI) technology to deliver data collection, real-time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management, and access control applications. The technology and services we provide help 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. 3 The following is a discussion of our financial condition, results of operations, financial resources, and working capital. This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements contained in this Form 10-Q. OVERVIEW The Company’s sales from operations for the three months ended March 31, 2024, were $18.3 million, a decrease of approximately $9.5 million, or 34%, over the three months ended March 31, 2023. The loss from operations for the three months ended March 31, 2024, was $1.3 million, a decrease of $752 thousand compared with the loss in the three months ended March 31, 2023, of $2 million. Basic loss per share from continuing operations for the three months ended March 31, 2024, was ($0.20) versus ($0.45) per share for the same period in 2023. Comprehensive loss for the three months ended March 31, 2024 and 2023 was $1.9 million and $3.1 million respectively, the only component to comprehensive loss besides net loss is foreign currency translation. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2024, the Company had cash in the amount of $881 thousand and a working capital deficit of $46.4 million, compared to cash in the amount of $1.7 million, and a working capital deficit of $45.4 million as of December 31, 2023. The Company had stockholders’ deficit attributable to OmniQ stockholders of $36.5 million and $35 million as of March 31, 2024, and December 31, 2023, respectively. This increase in our stockholders’ deficit was primarily attributable to net losses. The Company’s accumulated deficit was $115.9 million and $113.9 million as of March 31, 2024, and December 31, 2023. The Company’s operations used net cash of $623 thousand and $1.3 million in the three months ended March 31, 2024, and 2023, respectively. The decrease in cash used in operations of $666 thousand is due to the decrease in revenue. The Company’s cash used in investing activities was $48 thousand for the three months ended March 31, 2024, compared to cash used in investing activities of $341 thousand for the three months ended March 31, 2023. The Company’s financing activities used $971 thousand of cash during the three months ended March 31, 2024, and provided $3 million during the three months ended March 31, 2023. During the three months ended March 31, 2024, the Company made payments of $1.1 million on its notes payable, and during the three months ended March 31, 2023, made payments of $544 thousand on its notes payable. Additionally, the Company borrowed $156 thousand on the Company’s line of credit during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, when $3.4 million was borrowed on the Company’s line of credit. 4 Results of Operations The following tables set forth certain selected unaudited condensed consolidated statements of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance. For the three months ended March 31, Variation In thousands 2024 2023 $ % Revenue $ 18,317 $ 27,821 $ (9,504 ) (34.16 %) Cost of Goods sold 13,259 22,099 (8,840 ) (40.00 %) Gross Profit 5,058 5,722 (664 ) (11.60 %) Operating Expenses 6,317 7,733 (1,416 ) (18.31 %) Loss from operations (1,259 ) (2,011 ) 752 (37.39 %) Net loss (2,098 ) (3,507 ) 1,409 (40.17 %) Net Loss per common Share from continuing operations $ (0.20 ) $ (0.45 ) $ 0.25 (56.38 %) Revenues For the three months ended March 31, 2024, and 2023, the Company generated net revenues in the amount of $18.3 million and $27.8 million, respectively. The decrease between the three-month periods was attributable to delays in projects and a slower demand. Cost of Goods Sold For the three months ended March 31, 2024, and 2023, the Company recognized a total of $13.3 million and $22 million, respectively, of cost of goods sold. For the three months ended March 31, 2024, and 2023, cost of goods sold were 72% and 79% of net revenues, respectively. Operating expenses Total operating expenses for the three months ended March 31, 2024, and 2023 recognized was $6.3 million and $7.7 million, respectively, representing a 18% decrease. The decrease in operating expenses was due primarily to management’s cost savings plan. Research and Development – Research and development expenses for the three months ended March 31, 2024, and 2023 totaled $405 thousand and $423 thousand, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the three months ended March 31, 2024, and 2023 totaled $5.6 million and $6.8 million, respectively, representing a 18% decrease. The decrease was due primarily to management’s cost savings plan. Depreciation – Depreciation expenses for the three months ended March 31, 2024, and 2023 totaled $116 thousand and $108 thousand, respectively, representing a 7% increase. The increase is directly related to the acquisition of additional fixed assets. Intangible amortization – Intangible amortization expenses for the three months ended March 31, 2024, and 2023 totaled $231 thousand and $436 thousand, respectively. The decrease is due to diminishing life of intangibles. Other income and expenses Interest Expense – Interest expense for the three months ended March 31, 2024, totaled $917 thousand, as compared to $938 thousand for the three months ended March 31, 2023. The decrease is primarily attributable to the reduced line of credit. Inflation The Company’s results of operations have not been materially affected by inflation and management does not expect inflation to have a material impact on its operations in the future. Off- Balance Sheet Arrangements The Company currently does not have any off-balance sheet arrangements. 5 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE 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 March 31, 2024. Based upon their evaluation, the Chief Executive Officer and Principal Accounting Officer concluded that, as of March 31, 2024, 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 an evaluation, our CEO concluded that, as of March 31, 2024, 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. 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. 6 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ITEM 1A. RISK FACTORS Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ITEM 5. OTHER INFORMATION None. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission this Form 10-Q, including exhibits. You may read and copy all or any portion of the registration statement or any reports, statements, or other information in the files at SEC’s Public Reference Room located at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference room. Our filings, including the registration statement, will also be available to you on the website maintained by the Commission at http://www.sec.gov. We intend to furnish our stockholders with annual reports which will be filed electronically with the SEC containing the consolidated financial statements audited by our independent auditors, and to make available to our stockholder’s quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial statements. Our website is located at http://www.omniq.com. The Company’s website and the information contained on that site, or connected to that site, is not part of or incorporated by reference into this filing. 7 ITEM 6. EXHIBITS EXHIBIT INDEX 10.1 Share purchase Agreement dated May 3, 2021, by and between OMNIQ Corp, OMNIQ Technologies Ltd. and Haim Dangot. (incorporated by reference to the Current Report on Form 8-k filed with the SEC on May 6, 2021) 31.1 Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 2024 OMNIQ CORP. By: /s/ Shai Lustgarten Shai Lustgarten Chief Executive Officer, Interim Chief Financial Officer and Chairman of the Board 9