OMNIQ Corp. 10-Q

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