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 September 30, 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. 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. 3 OVERVIEW The Company’s sales from operations for the nine months ended September 30, 2024, were $56 million, a decrease of approximately $9 million, or 14%, over the nine months ended September 30, 2023. The loss from operations for the nine months ended September 30, 2024, was $3.2 million, a decrease of $3.9 million compared with the loss in the nine months ended September 30, 2023, of $7.1 million. Basic loss per share from continuing operations for the nine months ended September 30, 2024, was ($0.63) versus ($1.50) per share for the same period in 2023. DISCLOSURE OF THE CHANGES IN TRADING VENUE On May 3, 2024, The Nasdaq Stock Market LLC (“Nasdaq”) notified OMNIQ Corp. (the “Company”) that the Nasdaq Hearings Panel (the “Panel”) has determined to delist the Company’s common stock, and that trading of the Company’s securities will be suspended at the open of trading on May 7, 2024. As previously reported, on August 9, 2023, Nasdaq Listing Qualifications Staff (the “Staff”) notified the Company that it no longer complied with the minimum $35 million market value of listed securities (“MVLS”) required for continued listing as set forth in Listing Rule 5550(b)(2). In accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until February 5, 2024, to regain compliance. On February 8, 2024, Staff notified the Company that it had determined to delist the Company as it did not comply with the MVLS requirement for listing on the Exchange. On February 15, 2024, the Company requested a hearing, which was held on April 11, 2024. On May 7, 2024, OMNIQ Corp. stock transitioned from NASDAQ to the OTC Markets, and OMNIQ’s stock continues to trade on the OTCQB under the ticker symbol “OMQS”, ensuring uninterrupted market activity for its shareholders. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2024, the Company had cash in the amount of $1.2 million and a working capital deficit of $50 million, compared to cash in the amount of $1.7 million, and a working capital deficit of $45 million as of December 31, 2023. The Company had stockholders’ deficit attributable to OmniQ stockholders of $40.2 million and $35 million as of September 30, 2024, and December 31, 2023, respectively. This increase in our stockholders’ deficit was primarily attributable to net losses. The Company’s accumulated deficit was $121 million and $114 million as of September 30, 2024, and December 31, 2023. The Company’s operations provided net cash of $230 thousand and used $2.7 million in the nine months ended September 30, 2024, and 2023, respectively. The decrease in cash used by operations of $2.9 million is due to an increase in accounts payable. The Company’s cash used in investing activities was $87 thousand for the nine months ended September 30, 2024, compared to cash provided by investing activities of $598 thousand for the nine months ended September 30, 2023. The Company’s financing activities used $2.4 million of cash during the nine months ended September 30, 2024, and provided $323 thousand during the nine months ended September 30, 2023. During the nine months ended September 30, 2024, the Company made payments of $2.7 million on its notes payable, compared to the payments of $1.1 million for the nine months ended September 30, 2023. Additionally, the Company borrowed $329 thousand on the Company’s line of credit during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, when $796 thousand was borrowed on the Company’s line of credit. 4 Results of Operations The following tables set forth certain selected unaudited condensed consolidated statement 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. Three months ended September 30, Variation In thousands 2024 2023 $ % Revenue $ 18,549 $ 17,244 $ 1,305 7.57 % Cost of Goods sold 14,599 13,235 1,364 10.30 % Gross Profit 3,950 4,009 (59 ) (1.45 )% Operating Expenses 4,934 6,631 (1,697 ) (25.58 )% Loss from operations (984 ) (2,622 ) 1,638 (62.47 )% Net loss $ (1,599 ) $ (4,305 ) $ 2,706 (62.86 )% Net Loss per common Share from continuing operations $ (0.15 ) $ (0.55 ) $ 0.40 (72.60 )% Revenues For the three months ended September 30, 2024 and 2023, the Company generated net revenues in the amount of $18.5 million and $17 million, respectively. The increase between the three-month periods was attributable to the increase in demand. Cost of Goods Sold For the three months ended September 30, 2024 and 2023, the Company recognized a total of $14.6 million and $13 million, respectively, of cost of goods sold. For the three months ended September 30, 2024 and 2023, cost of goods sold were 79% and 77% of net revenues, respectively. Operating expenses Total operating expenses for the three months ended September 30, 2024 and 2023 recognized was $5 million and $6.6 million, respectively, representing a 25% decrease. The decreases are related to the cost reduction plan put in place by management. Research and Development – Research and development expenses for the three months ended September 30, 2024 and 2023 totaled $261 thousand and $482 thousand, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the three months ended September 30, 2024 and 2023 totaled $4.4 million and $5.6 million, respectively, representing a 21% decrease. The decreases are related to the cost reduction plan put in place by management. Depreciation – Depreciation expenses for the three months ended September 30, 2024 and 2023 totaled $90 thousand and $146 thousand, respectively, representing a 38% decrease. Intangible amortization – Intangible amortization expenses for the three months ended September 30, 2024 and 2023 totaled $228 thousand and $418 thousand, respectively. Other income and expenses Interest Expense – Interest expense for the three months ended September 30, 2024 totaled $929 thousand, as compared to $898 thousand for the three months ended September 30, 2023. For the nine months ended September 30, Variation In thousands 2024 2023 $ % Revenue $ 55,923 $ 65,111 $ (9,188 ) (14.11 )% Cost of Goods sold 42,031 51,494 (9,463 ) (18.38 )% Gross Profit 13,892 13,617 275 2.02 % Operating Expenses 17,056 20,756 (3,700 ) (17.83 )% Loss from operations (3,164 ) (7,139 ) 3,975 (55.68 )% Net loss (6,742 ) (11,678 ) 4,936 (42.27 )% Net Loss per common Share from continuing operations $ (0.63 ) $ (1.50 ) $ 0.87 (58.00 )% 5 Revenues For the nine months ended September 30, 2024 and 2023, the Company generated net revenues in the amount of $56 million and $65 million, respectively. The decrease between the nine-month periods was attributable to the decrease in demand. Cost of Goods Sold For the nine months ended September 30, 2024 and 2023, the Company recognized a total of $42 million and $51 million, respectively, of cost of goods sold. For the nine months ended September 30, 2024 and 2023, cost of goods sold were 75% and 79% of net revenues, respectively. Operating expenses Total operating expenses for the nine months ended September 30, 2024 and 2023 recognized was $17 million and $21 million, respectively, representing a 17% decrease. The decreases are related to the cost reduction plan put in place by management. Research and Development – Research and development expenses for the nine months ended September 30, 2024 and 2023 totaled $1.1 million and $1.5 million, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the nine months ended September 30, 2024 and 2023 totaled $15 million and $18 million, respectively, representing a 15% decrease. The decreases are related to the cost reduction plan put in place by management. Depreciation – Depreciation expenses for the nine months ended September 30, 2024, and 2023 totaled $298 thousand and $349 thousand, respectively. Intangible amortization – Intangible amortization expenses for the nine months ended September 30, 2024, and 2023 totaled $686 thousand and $1.3 million, respectively. Other income and expenses Interest Expense – Interest expense for the nine months ended September 30, 2024 totaled $2.6 million, as compared to $2.6 million for the nine months ended September 30, 2023. 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. Cybersecurity Risk Management and Strategy We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data. Managing Material Risks & Integrated Overall Risk Management We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our management team continuously evaluates and addresses cybersecurity risks in alignment with our business objectives and operational needs. Oversee Third-party Risk Because we are aware of the risks associated with third-party service providers, we have implemented stringent processes to oversee and manage these risks. We conduct thorough security assessments of all third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. The monitoring includes annual assessments of the SOC reports of our providers and implementing complementary controls. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third-parties. Risks from Cybersecurity Threats We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing. 6 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable