OMNIQ Corp. 10-Q

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