OMNIQ Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS OMNIQ CORP. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2026 December 31, 2025 (In thousands, except share and per share data) As of March 31, 2026 December 31, 2025 ( UNAUDITED ) ASSETS Current assets Cash and cash equivalents $ 787 $ 679 Accounts receivable, net 8,158 9,536 Inventory, net 3,253 3,409 Prepaid expenses 1,137 786 Other current assets 48 52 Total current assets 13,383 14,462 Property and equipment, net of accumulated depreciation $ 1,408 and $ 1,413 , respectively 526 528 Goodwill 3,304 3,336 Trade name, net of accumulated amortization of $ 5,371 and _$ 5,334 , respectively 1,084 1,154 Customer relationships, net of accumulated amortization of $ 13,587 and $ 13,474 , respectively 2,543 2,757 Other intangibles, net of accumulated amortization of $ 2,032 and $ 2,038 , respectively 307 335 Right of use lease asset 2,487 1,656 Other assets 1,916 1,948 Total Assets $ 25,550 $ 26,176 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable and accrued liabilities $ 10,503 $ 11,232 Line of credit 1,940 1,342 Accrued payroll and sales tax 1,464 1,649 Related party advances 5,624 3,767 Note payable – related party, short term 919 919 Notes payable – current portion 4,621 5,486 Notes payable 4,621 5,486 Lease liability – current portion 686 373 Other current liabilities 2,267 2,933 Total current liabilities 28,024 27,701 Long-term liabilities Related party notes payable 8,491 8,690 Notes payable, less current portion 883 530 Notes payable 883 530 Lease liability 1,666 1,237 Other long term liabilities 634 715 Total liabilities 39,698 38,873 Commitments and Contingencies (See Note 8) 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, value 1 1 Common stock; $ 0.001 par value; 35,000,000 shares authorized; 15,152,930 and 15,102,930 shares issued and outstanding, respectively. 15 15 Additional paid-in capital 113,594 113,592 Accumulated (deficit) ( 125,708 ) ( 124,050 ) Accumulated other comprehensive (loss) ( 2,050 ) ( 2,255 ) Total OmniQ stockholders’ equity (deficit) ( 14,148 ) ( 12,697 ) Total liabilities and stockholders’ equity (deficit) $ 25,550 $ 26,176 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) 2026 2025 For the Three months ended March 31 (In thousands, except share and per share data) 2026 2025 Revenues $ 7,680 $ 7,979 Cost of goods sold 5,425 5,796 Gross profit 2,255 2,183 Operating expenses Research & Development 478 485 Selling, general and administrative 2,771 1,866 Depreciation 16 26 Amortization 256 232 Total operating expenses 3,521 2,609 Loss from operations ( 1,266 ) ( 426 ) Other income (expenses): Interest expense ( 306 ) ( 260 ) Other (expenses) income ( 79 ) ( 942 ) Total other expenses ( 385 ) ( 1,202 ) Net Loss Before Income Taxes ( 1,651 ) ( 1,628 ) Current Provision for Income Taxes - 36 Total Provision for Income Taxes - 36 Net Income (Loss) before discontinued operations ( 1,651 ) ( 1,592 ) Loss from Discontinued Operations, net - ( 497 ) Net Loss $ ( 1,651 ) $ ( 2,089 ) Net Loss $ ( 1,651 ) $ ( 2,089 ) Foreign currency translation adjustment 205 491 Comprehensive loss $ ( 1,446 ) $ ( 1,598 ) Reconciliation of net loss to net loss attributable to common shareholders Net loss $ ( 1,651 ) $ ( 2,089 ) Less: Dividends attributable to non-common stockholders’ of OmniQ Corp ( 7 ) ( 7 ) Net loss attributable to common stockholders’ of OmniQ Corp $ ( 1,658 ) $ ( 2,096 ) Net (loss) per share - basic attributable to common stockholders’ of OmniQ Corp $ ( 0.11 ) $ ( 0.19 ) Net (loss) per share - diluted attributable to common stockholders’ of OmniQ Corp $ ( 0.11 ) $ ( 0.19 ) Weighted average number of common shares outstanding – basic and diluted 15,140,705 10,712,930 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) For the Three Months ended March 31, 2025 and 2026 (In thousands) Shares Amount Shares Amount Capital Deficit Income (Loss) (Deficit) Series C Additional Accumulated Other Total Stockholders’ Preferred Stock Common Stock Paid-in Accumulated Comprehensive Equity (In thousands) Shares Amount Shares Amount Capital Deficit Income (Loss) (Deficit) Balance, December 31, 2024 502 $ 1 10,712 $ 11 $ 78,713 $ ( 123,899 ) $ 1,286 $ ( 43,888 ) Dividend on Class C Shares - - - - - ( 7 ) - ( 7 ) Stock-based compensation – options, warrants, issuances - - - - 2 - - 2 Cumulative Translation Adjustment - - - - - - 491 491 Net (loss) income - - - - - ( 2,089 ) - ( 2,089 ) Balance, March 31, 2025 502 $ 1 10,712 $ 11 $ 78,715 $ ( 125,995 ) $ 1,777 $ ( 45,491 ) Balance, December 31, 2025 502 $ 1 15,102 $ 15 $ 113,592 $ ( 124,050 ) $ ( 2,255 ) $ ( 12,697 ) Balance 502 $ 1 15,102 $ 15 $ 113,592 $ ( 124,050 ) $ ( 2,255 ) $ ( 12,697 ) Dividend on Class C Shares - - - - - ( 7 ) - ( 7 ) Exercise of stock option - - 50 - 2 - - 2 Stock Based Compensation - - - - - - - - Cumulative Translation Adjustment - - - - - - 205 205 Net (loss) income - - - - - ( 1,651 ) - ( 1,651 ) Balance, March 31, 2026 502 $ 1 15,152 $ 15 $ 113,594 $ ( 125,708 ) $ ( 2,050 ) $ ( 14,148 ) Balance 502 $ 1 15,152 $ 15 $ 113,594 $ ( 125,708 ) $ ( 2,050 ) $ ( 14,148 ) 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 (UNAUDITED) For the Three Months Ended March 31, (In thousands) 2026 2025 Cash flows from operations Net loss $ ( 1,651 ) $ ( 2,089 ) Loss from discontinued operations - 497 Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Stock-based compensation 2 Depreciation and amortization 291 283 Amortization of ROU asset 1 114 Loss from sale of other assets ( 249 ) ( 4 ) Changes in operating assets and liabilities: Accounts receivable 973 1,572 Prepaid expenses ( 345 ) 154 ) Inventory 131 353 Other assets 31 48 Accounts payable and accrued liabilities ( 392 ) ( 1,149 ) Accrued payroll and sales taxes payable ( 233 ) 104 Lease liability ( 85 ) ( 116 Deferred tax assets, net ( 3 ) ( 45 ) Other liabilities 1,461 ( 134 ) Net cash provided by (used in) operating activities - continuing ( 70 ) ( 410 ) Net cash provided by (used in) operating activities - discontinuing - 1,428 Net cash provided by (used in) operating activities ( 70 ) 1,018 Cash flows from investing activities Purchase of property and equipment ( 26 ) ( 31 ) Net cash (used in) investing activities – continuing operations ( 26 ) ( 31 ) Net cash (used in) investing activities – discontinuing operations - - Net cash (used in) investing activities ( 26 ) ( 31 ) Cash flows from financing activities Net proceeds on exercise of options 3 - Payments on notes/loans payable ( 1,236 ) ( 902 ) Proceeds from draw on line of credit 558 ( 223 ) Net cash (used in) provided by financing activities – continuing operations ( 675 ) ( 1,125 ) Net cash (used in) provided by financing activities – discontinuing operations - ( 40 ) Net cash (used in) provided by financing activities ( 675 ) ( 1,165 ) Net change in cash and cash equivalents ( 771 ) ( 178 ) Effect of foreign exchange rates on cash and cash equivalents 879 541 Cash and cash equivalents at beginning of period 679 2,349 Cash and cash equivalents at end of period $ 787 $ 2,712 Non-cash activities: Declared dividends payable $ 7 $ 7 Right of use asset acquired in exchange for lease liability $ - $ - Supplemental disclosure of cash flow information: Cash paid for interest $ 185 $ 450 Cash paid for income 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, 2025 (the “2025 Form 10-K”). We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in the 2025 Form 10-K. During the three-month period ended March 31, 2026, there were no significant changes to those accounting policies other than below. Recent Accounting Pronouncements not yet adopted In November 2024, the FASB issued ASU 2025-03 “Income Statement: Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40)” to improve the disclosures about an entity’s expenses. Upon adoption, we will be required to disclose in the notes to the financial statements a disaggregation of certain expense categories included within the expense captions on the face of the income statement. The standard is effective for our 2027 annual period, and our interim periods beginning in 2028, with early adoption permitted. The standard can be applied either prospectively or retrospectively. We are currently assessing adoption timing and the effect that the updated standard will have on our financial statement disclosures. In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software . The standard changes when capitalization of internal-use software costs begins and updates the related guidance for modern software development methods. The Company is evaluating the impact of this guidance on the timing of capitalization, amortization, and related disclosures. The standard is effective for annual periods beginning after December 15, 2027, including interim periods within those annual periods, with early adoption permitted. 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, 2026, and 2025 were 15,140,705 and 10,712,930 , 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 EARNINGS PER SHARE March 31, 2026 March 31, 2025 Options to purchase common stock 2,027,833 1,342,833 Warrants to purchase common stock 6,875,901 759,235 Potential shares excluded from diluted net loss per share 8,903,734 2,102,068 F- 5 NOTE 2 – GOING CONCERN 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 $ 14.6 million as of March 31, 2026 ● Accumulated deficit of $ 125.7 million as of March 31, 2026 ● 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. ● The Company has implemented an aggressive debt settlement plan with its vendors and debt holders to clean up the Balance Sheet presentation and during 2025, the Company was able to settle many debts for a discount. Short term liabilities for the Company decreased from $ 86.3 million to roughly $ 27.7 million, showing the efforts of management are working. In December 2025 management finalized an equity raise which resulted in approximately $ 941,000 net cash received from investors. NOTE 3 – CONCENTRATIONS For the three-months ended March 31, 2026, and the year ended December 31, 2025, no customer accounted for more than 10 % of the Company’s consolidated revenues from continuing operations. Accounts receivable at March 31, 2026 and December 31, 2025 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, 2026, and 11.2 % as of December 31, 2025. For the three months ended March 31, 2026, and the year ended December 31, 2025 one vendor made up 45% and 45 %, respectively, of our purchases. NOTE 4 – INVENTORY Inventory consisted of the following as of: SCHEDULE OF INVENTORY In thousands March 31, 2026 December 31, 2025 Raw materials $ 248 $ 283 Inventory in transit 541 440 Finished goods (less allowance) 3,231 3,409 Less allowance for obsolescence ( 767 ) ( 723 ) Total inventories $ 3,253 $ 3,409 NOTE 5 – RELATED PARTY NOTES PAYABLE Concurrent with the sale of the Quest Solution division, the company entered into a Transition Services Agreement whereas the costs for some employees would be split during the transition. Connected to that was advances to OMNIQ from the Buyer to facilitate the transition. This entity is majority controlled by the Company’s CEO and thus treated as related party advances. The balance as of December 31, 2025 was $ 3,767,032 and at March 31, 2026 was $ 5,624,040 . This is non interest bearing with no predefined or agreed upon repayment term. F- 6 In addition and concurrent with the sale of the Quest Solution division, the Company entered into a Promissory Note which bears interest at 5 % per annum, is amortized over a ten-year period, and provides for a balloon payment after the third year. The balance at December 31, 2025 was $ 9.6 million and at March 31, 2026 was $ 9.4 million. NOTE 6 – OTHER NOTES PAYABLE SCHEDULE OF OTHER NOTES PAYABLE (In thousands) March 31, 2026 December 31, 2025 Note payable other 5,504 6,016 Less current portion ( 4,621 ) ( 5,486 ) Long-term notes payable $ 883 $ 530 In thousands March 31, 2026 December 31, 2025 Related Party Notes Payable - other $ 9,410 $ 9,609 Less current portion of related party note payable ( 919 ) ( 919 ) Long Term Notes Payable – related party $ 8,491 $ 8,690 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 At December 31, 2025, the balance owed is $ 437,500 USD and at March 31, 2026, the balance owed is $ 385,000 USD. 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. This was completed in January 2025. 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. The loan is renewed every month at Israeli Prime Rate plus + 1.3 %, which at March 31, 2026 was 7.3 % and at December 31, 2025 was 7.05 %. In February 2024, NIS 1.5 million of the loan was converted into a short-term loan to be repaid in 12 installments, bearing interest at Prime + 1.5 %. In July 2024, an additional 1.5 million was converted into a long-term loan to be repaid in 18 installments, bearing interest at a rate of Prime + 1.5 %. In December 2025, an additional 0.8 million was converted into a long-term loan to be repaid in 12 installments, bearing interest at a rate of Prime + 2.2 %, the balance at December 31, 2025 was still $ 0.8 million and at March 31, 2026 was $ 0.6 million. At December 31, 2025, the Company owed Hapoalim Bank USD $ 1.39 million. At March 31, 2026, the balance was approximately $ 1.12 million. 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. The loan is renewed every month at Israeli Prime Rate plus 1.89 %, which at December 31, 2025 was 7.64 % and at March 31, 2026 was 7.64 %. In March 2024, NIS 7.5 million of the loan was converted into a long-term loan to be repaid in 36 installments, bearing interest at a rate of Prime + 3.25 %, which at December 31, 2025 was 9.0 % which at March 31, 2026 was 9.0 %. In June 2025 the Company decreased the balance of the revolving loan by further NIS 4 million. F- 7 The short-term loan (renewed every month) at 2025 is NIS 10 million, approximately US $ 3.138 million. At December 31, 2025, the Company owed Bank Leumi USD $ 4.138 million. At March 31, 2026, the Company owed Bank Leumi approximately USD $ 4 million. 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 9.25 % per annum and is payable in 36 monthly installments. The balance at December 31, 2025 is $ 130 thousand and at March 31, 2026 was $ 100 thousand. As of March 31, 2026, the Company was not in compliance with certain financial covenants related to the Bank Leumi and Bank Hapoalim debt. The Company’s failure to comply with these financial covenants could result in an event of default under its debt agreements. Therefore, we reclassified the total balance as current debt on the balance sheet. On December 29, 2025, a new covenants agreement was signed with Bank Hapoalim, pursuant to which the Company is required to comply with the financial covenants set forth in the new agreement, commencing with the 2026 financial statements. As part of the sale of the Quest division and its assets, the Company entered into a Promissory Note which bears interest at 5 % per annum, is amortized over a 10 ten-year period, and provides for a balloon payment after the third year. The balance at March 31, 2026 was $ 9.4 million. Due to the related party nature of the CEO of OMNIQ relationship with the Note Holder, this note is deemed related party. NOTE 7 – STOCKHOLDERS’ EQUITY PREFERRED STOCK Series A As of March 31, 2026, 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 13 common shares. Series B As of March 31, 2026, there was 1 preferred share designated and no preferred shares outstanding. Series C As of March 31, 2026, 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, 2026, the accrued dividends on the Series C Preferred Stock was $ 233 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. During the quarter ended March 31, 2026, the Company issued 50,000 shares upon exercise and receipt of funds for stock options. The proceeds received were $ 3,000 . F- 8 NOTE 8 – LITIGATION On November 3, 2024 a commercial real estate company filed a lawsuit against Dangot Computers, OMNIQ Technologies and some of Dangot’s officers alleging breach of a letter of intent for a lease arrangement. The claims were brought in an Israeli court. The initial claim against Dangot Computers is NIS 21 million approximately US $ 5.6 million. The Company believes that it has meritorious defenses to such action and intends to vigorously defend itself. At this early stage, it is not possible to fully assess the chances of a lawsuit. The judge has referred the matter to mediation and the company believes that its exposure is significantly lower than the original claim. The Company has recorded a low level accrual representing the amount it currently estimates will be required for payment. In March 2025, the Company was named a defendant in a case involving a consultant who was terminated and who claims he is owed approximately $ 389,000 in unpaid fees and commissions. The Company believes it has multiple defense and cross claims against the former consultant and is evaluating its response to the lawsuit, but plans to vigorously defend the suit. On June 30, 2025, the Company’s subsidiary Dangot Computers reached at settlement with one of its vendors in Israel related to past due rebates and price protection payments entitled under prior agreements. The vendor agreed to pay Dangot Computers, approximately USD $ 1.2 million, based on certain milestones related to additional purchases. These payments are being treated as reduction in Cost of Goods sold upon receipt from the Vendor. As of December 31, 2025, the full amount had been received from the vendor. During 2025, several companies filed third-party and fourth-party claims against our subsidiary, Dangot Computers alleging patent infringement. In the opinion of Dangot’s legal counsel, at this preliminary stage it is not yet possible to assess the likelihood of the claims; therefore, no provision has been recorded in the Company’s financial statements in connection with this matter. NOTE 9 – BUSINESS SEGMENT The Company operates in a single reportable segment, referred to as providing solutions including hardware, software, communications, and automated management service as an established distributor of barcode labels, tags, and ribbons, as well as RFID labels and tags. The business is managed by the chief executive officer who is the Chief Operating Decision Maker (CODM). The CODM evaluates segment performance based on operating income (loss) for purposes of allocating resources and evaluating financial performance. The accounting policies of our single reportable segment are the same as those for the Company as a whole. NOTE 10 – DISCONTINUED OPERATIONS As discussed in the Form 10K filed April 15, 2026, and the relevant Form 8-K, on July 11, 2025, OMNIQ Corp., a Delaware corporation (the “Company”), together with its subsidiaries, Quest Marketing, Inc., HTS Image Processing, Inc., OmniQ Vision Inc., HTS Image Ltd., OmniQ Technologies Ltd., and Dangot Computers, Ltd. (collectively, the “Sellers”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Summit Junction Holdings LLC, a Delaware limited liability company (the “Buyer”). Pursuant to the Purchase Agreement, the Sellers agreed to sell, and Buyer agreed to purchase, substantially all of the assets and assume certain liabilities mainly associated with the Company’s legacy business line, including its integrated hardware, software, and automation solutions business, (the “Transferred Business”). The Transaction was consummated on July 11, 2025. Although the Purchase Agreement is dated as of June 30, 2025, the parties executed the agreement and consummated the Transaction on July 11, 2025. The aggregate consideration for the Transaction is approximately $ 45.0 million, consisting of the assumption by Buyer of up to $ 55.0 million in specified liabilities of the Transferred Business and the issuance by the Company of a Promissory Note in the principal amount of $ 10.0 million in favor of the Buyer. The Promissory Note bears interest at 5 % per annum, is amortized over a ten-year period, and provides for a balloon payment after the third year. In addition, the Company is entitled to a contingent payment of up to $ 10.0 million in the event that, within 18 months following the closing, Buyer either (i) consummates a sale of all or substantially all of its assets or equity for consideration in excess of $ 100.0 million or (ii) completes an initial public offering at a valuation exceeding $ 100.0 million. The assets sold include, among other things, accounts receivable, inventory, tangible personal property, intellectual property, contract rights, books and records, and other assets used or held for use in connection with the Transferred Business. Certain assets were excluded from the Transaction, including the Company’s cash and cash equivalents and all assets not related to the Transferred Business. Buyer assumed only those liabilities specified in the Purchase Agreement, and the Company retained all other liabilities, including those unrelated to the Transferred Business or expressly excluded. The Purchase Agreement contains customary representations, warranties, and covenants, including pre-closing operating covenants, post-closing indemnification provisions, and certain limitations on liability. The Transaction and Purchase Agreement were approved by the Company’s Board of Directors effective June 30, 2025 following completion of a fairness opinion, dated June 27, 2025, from an independent financial advisor. In connection with the closing, the Company and Buyer entered into and delivered various ancillary agreements, including a Bill of Sale, Assignment and Assumption Agreement, Trademark Assignment Agreement, Promissory Note, Intellectual Property License Agreement, and Transition Services Agreement. The Company also entered into a consent agreement with its largest vendor Bluestar to consent to the transfer of the liabilities owed to it from the Company to the Buyer. Due to an entity affiliated with Shai Lustgarten, the Company’s CEO as a principal member of the Buyer, the transaction is deemed related party. Pursuant to his employment contract, the CEO, Shai Lustgarten is entitled to a bonus equal to 4 % of a total transaction price and pursuant to that, the Board of Directors awarded a bonus of $ 1.72 million to Mr. Lustgarten. Based on ASC 850-10, ASC 845-10, ASC 820, and SEC Staff Accounting Bulletin Topics 5.G, 5.T, and 1.B.1, the transaction represents a capital contribution from the CEO to the Company. While a fairness opinion was obtained, it does not fully satisfy ASC 820 fair value measurement requirements for full recognition. Accordingly, the $ 34 million gain is recorded directly to equity as a capital contribution. This conclusion aligns with both the letter and the spirit of applicable GAAP and SEC guidance. The sale resulted in a net gain on disposal of approximately $ 33.8 million, net of tax, which reflects the difference between the carrying amount of the net assets disposed of and the consideration transferred/assumed, including the promissory note and transaction costs. However, due to the related-party nature of the transaction, management determined to record the gain to Additional Paid-in Capital. F- 9 The net gain (APIC) was calculated as follows (in thousands): SCHEDULE OF NET GAIN ON ADDITIONAL PAID IN CAPITAL Reduction of cash and cash equivalents $ ( 2,388 ) Reduction of accounts receivable, net ( 4,730 ) Reduction of inventory, net ( 282 ) Reduction of other current assets ( 996 ) Reduction in property and equipment, net of accumulated depreciation ( 48 ) Reduction in accounts payable and accrued liabilities 55,000 Increase in other current liabilities ( 1,808 ) Increase in related party notes payable ( 10,000 ) Increase in additional paid-in capital $ ( 34,748 ) Income Taxes Payable on transaction $ 960 Additional paid-in capital reduction $ 960 Details of net loss from discontinued operations , net of taxes, are as follows (in thousands): SCHEDULE OF DISCONTINUED OPERATIONS For the three months ended March 31, 2026 March 31, 2025 Revenues $ - $ 11,924 Cost of goods sold - 8,966 Selling, general and administrative - 3,198 Research & Development - 22 Depreciation - 3 Amortization - - Interest expense - 202 Other expenses (income) - 30 Current tax - - Net Income (Loss) from Discontinued Ops (Net of Tax) $ - $ ( 497 ) Because the transaction was effective June 30, 2025, no assets or liabilities disposed in the sale were included on the balance sheet as of December 31, 2025. The balances of the disposed assets and liabilities as of December 31, 2024 were as follows: Assets Current Assets Accounts receivable, net $ 10,608 Inventory, net 4,197 Prepaid expenses 482 Other current assets 61 Total current assets 15,348 Property and equipment, net of accumulated depreciation 8 Right of use lease asset 471 Total Assets $ 15,827 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 56,863 Accrued payroll and sales tax 1,490 Lease liability – current portion 103 Other current liabilities 206 Total Current Liabilities 58,662 Deferred revenue 5,891 Lease liability 178 Total liabilities $ 64,731 Cash flows related to the discontinued business have not been segregated and are included in the condensed consolidated statements of cash flows. The following table provides supplemental cash-flow information for the discontinued operations (in thousands): SCHEDULE OF SUPPLEMENTAL CASH-FLOW INFORMATION FOR DISCONTINUED OPERATIONS Three months ended March 31, 2026 Three months ended March 31, 2025 Depreciation and amortization - 3 Capital expenditures - 106 Other significant non-cash items Cancelation of lease - - NOTE 11 – SUBSEQUENT EVENTS Subsequent Event – Planned Divestiture of CodeBlocks In connection with a transaction executed on June 30, 2025, the Company agreed to divest its CodeBlocks business, which is currently included within goodwill. As of December 31, 2025, the definitive agreements related to the divestiture of CodeBlocks had not been finalized or executed and remained subject to completion of final terms and approvals. Accordingly, the Company concluded that the criteria for classification as held for sale were not met as of year-end. Subsequent to December 31, 2025, the Company has continued to finalize the terms of the transaction, and the definitive agreements are expected to be executed in the near term. The completion of the divestiture remains subject to final execution and customary conditions. As discussed in Note 6. the Dangot Computers subsidiary has a bank loan which as discussed is in negotiations with receiving an extension on the bank covenants. As of May 20, 2026, there are no other material subsequent events that have occurred. F- 10