OMNIQ Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS OMNIQ CORP. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2025 December 31, 2024 (In thousands, except share and per share data) As of March 31, 2025 December 31, 2024 ( UNAUDITED ) ASSETS Current assets Cash and cash equivalents $ 2,712 $ 2,349 Accounts receivable, net 15,798 20,945 Inventory, net 4,326 7,405 Prepaid expenses 1,089 1,085 Other current assets 103 96 Total current assets 24,028 31,880 Property and equipment, net of accumulated depreciation 684 721 Goodwill 2,862 2,918 Trade name, net of accumulated amortization 1,120 1,187 Customer relationships, net of accumulated amortization 2,909 3,115 Other intangibles, net of accumulated amortization 384 410 Right of use lease asset 884 1,076 Other assets 2,239 2,282 Total Assets $ 35,110 $ 43,589 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 64,850 $ 66,097 Line of credit 269 535 Accrued payroll and sales tax 2,774 2,903 Notes payable – current portion 7,857 8,512 Lease liability – current portion 632 701 Other current liabilities 2,808 7,575 Total current liabilities 79,190 86,323 Long-term liabilities Accrued interest and accrued liabilities, related party 73 73 Notes payable, less current portion 644 234 Lease liability 225 353 Other long term liabilities 469 494 Total liabilities 80,601 87,477 Commitments and Contingencies - - 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; 10,712,930 and 10,712,930 shares issued and outstanding, respectively. 11 11 Additional paid-in capital 78,715 78,713 Accumulated (deficit) ( 125,995 ) ( 123,899 ) Accumulated other comprehensive income 1,777 1,286 Total OmniQ stockholders’ equity (deficit) ( 45,491 ) ( 43,888 ) Total liabilities and stockholders’ equity (deficit) $ 35,110 $ 43,589 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) 2025 2024 For the Three months ended March 31 (In thousands, except share and per share data) 2025 2024 Revenues $ 19,903 $ 18,317 Cost of goods sold 14,762 13,259 Gross profit 5,141 5,058 Operating expenses Research & Development 507 405 Selling, general and administrative 5,064 5,565 Depreciation 28 116 Amortization 232 231 Total operating expenses 5,831 6,317 Loss from operations ( 690 ) ( 1,259 ) Other income (expenses): Interest expense ( 462 ) ( 917 ) Other (expenses) income ( 973 ) 31 Total other expenses ( 1,435 ) ( 886 ) Net Loss Before Income Taxes ( 2,125 ) ( 2,145 ) Current Provision for Income Taxes 36 47 Total Provision for Income Taxes 36 47 Net Loss $ ( 2,089 ) $ ( 2,098 ) Net Loss $ ( 2,089 ) $ ( 2,098 ) Foreign currency translation adjustment 491 241 Comprehensive loss $ ( 1,598 ) $ ( 1,857 ) Reconciliation of net loss to net loss attributable to common shareholders Net loss $ ( 2,089 ) $ ( 2,098 ) Less: Dividends attributable to non-common stockholders’ of OmniQ Corp ( 7 ) ( 7 ) Net loss attributable to common stockholders’ of OmniQ Corp $ ( 2,096 ) $ ( 2,105 ) Net (loss) per share - basic attributable to common stockholders’ of OmniQ Corp $ ( 0.20 ) $ ( 0.20 ) Weighted average number of common shares outstanding - basic 10,712,930 10,688,340 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, 2024 and 2025 (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, 2023 502 $ 1 10,675 $ 11 $ 78,340 $ ( 113,923 ) $ 551 $ ( 35,020 ) Dividend on Class C Shares - - - - - ( 7 ) - ( 7 ) CodeBlocks Acquisition - - - - - 56 - 56 ESPP Stock Issuance - - 15 - 6 - - 6 Stock-based compensation – options, warrants, issuances - - - - 293 - - 293 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, December 31, 2024 502 $ 1 10,712 $ 11 $ 78,713 $ ( 123,899 ) $ 1,286 $ ( 43,888 ) Balance 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 502 $ 1 10,712 $ 11 $ 78,715 $ ( 125,995 ) $ 1,777 $ ( 45,491 ) 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) 2025 2024 Cash flows from operations Net loss $ ( 2,089 ) $ ( 2,098 ) Adjustments to reconcile net loss to net cash provided by operating activities: Stock-based compensation 2 293 Depreciation and amortization 285 347 Amortization of ROU asset 184 299 Loss from sale of other assets ( 4 ) - Changes in operating assets and liabilities: Accounts receivable 5,277 ( 508 ) Prepaid expenses ( 8 ) 181 Inventory 3,039 640 Other assets 45 242 Accounts payable and accrued liabilities ( 765 ) 696 Accrued payroll and sales taxes payable ( 127 ) 795 Lease liability ( 189 ) ( 302 ) Deferred tax assets, net ( 45 ) ( 719 ) Other liabilities ( 4,587 ) ( 489 ) Net cash provided by (used in) operating activities 1,018 ( 623 ) Cash flows from investing activities Purchase of property and equipment ( 31 ) ( 48 ) Net cash (used in) investing activities ( 31 ) ( 48 ) Cash flows from financing activities Proceeds from ESPP stock issuance - 6 Payments on notes/loans payable ( 903 ) ( 1,133 ) Proceeds from draw on line of credit ( 262 ) 156 Net cash (used in) provided by financing activities ( 1,165 ) ( 971 ) Net change in cash and cash equivalents ( 178 ) ( 1,642 ) Effect of foreign exchange rates on cash and cash equivalents 541 845 Cash and cash equivalents at beginning of period 2,349 1,678 Cash and cash equivalents at end of period $ 2,712 $ 881 Non-cash activities: Declared dividends payable $ 7 $ 7 Right of use asset acquired in exchange for lease liability $ - $ 1,284 Supplemental disclosure of cash flow information: Cash paid for interest $ 450 $ 916 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, 2024 (the “2024 Form 10-K”). We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in the 2024 Form 10-K. During the three-month period ended March 31, 2025, there were no significant changes to those accounting policies other than below. Accounting Standards Updates ASU 2023-09, “Income Taxes (Topic 740), Improvement to Income Tax Disclosures.” The amendments in ASU 2023-09 require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The adoption of ASU 2023-09 is not expected to have a material impact on the Company’s financial statements. 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, 2025, and 2024 were 10,712,930 and 10,688,340 , 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, 2025 March 31, 2024 Options to purchase common stock 1,342,833 1,372,333 Warrants to purchase common stock 759,235 1,606,734 Potential shares excluded from diluted net loss per share 2,102,068 2,979,067 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 $ 55.1 million as of March 31, 2025 ● Accumulated deficit of $ 126 million as of March 31, 2025 ● 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, 2025, was approximately $ 56.6 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 six years. NOTE 3 – CONCENTRATIONS For the three-months ended March 31, 2025, and the year ended December 31, 2024, no customer accounted for more than 10 % and one customer accounted for 23.7 %, respectively, of the Company’s consolidated revenues. Accounts receivable at March 31, 2025 and December 31, 2024 are made up of trade receivables due from customers in the ordinary course of business. One customer accounted for 11.2 % of the outstanding receivables as of March 31, 2025, and 26 % as of December 31, 2024. For the three months ended March 31, 2025, and the year ended December 31, 2024 one vendor made up 45 % and 47 %, 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 November 1, 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, 2025, 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. NOTE 5 – INVENTORY Inventory consisted of the following as of: SCHEDULE OF INVENTORY In thousands March 31, 2025 December 31, 2024 Raw materials $ 266 $ 287 Inventory in transit 1,126 4,471 Finished goods (less allowance) 4,019 3,978 Less allowance for obsolescence ( 1,085 ) ( 1,331 ) Total inventories $ 4,326 $ 7,405 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 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, 2025, was $ 0 . NOTE 7 – RELATED PARTY NOTES PAYABLE Note Payable – Marin In December 2017, we entered into a $ 660 thousand note payable at 1.89 % annual interest rate (the “Marin Note”) with two individuals from whom we previously acquired their company (in 2014). The Marin Note was payable in 60 monthly principal payments of $ 20 thousand beginning in October 2018. Accrued interest payable as of March 31, 2025 and December 31, 2024, was $ 73 thousand and $ 73 , respectively. Accrued interest was payable at maturity. This accrued interest was outstanding as of March 31, 2025. F- 7 NOTE 8 – OTHER NOTES PAYABLE SCHEDULE OF OTHER NOTES PAYABLE (In thousands) March 31, 2025 December 31, 2024 Note payable other 8,501 8,746 Less current portion ( 7,857 ) ( 8,512 ) Long-term notes payable $ 644 $ 234 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, 2024, the balance owed is $ 1,815,840 and at March 31, 2025, the balance owed is $ 1,886,466 NIS (approx. $ 528,211 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. 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 7.28 % per annum (Israeli Prime Rate plus 1.28 %) and is payable in 36 installments of principal and interest over 3 years. The balance at March 31, 2025 was approximately $ 0.14 million. During the year ended December 31, 2023, the Company entered into a short-term loan Hapoalim Bank totaling NIS 2.5 million, approximately US $ 0.67 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 December 31, 2024 was 7.3 %. 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 %. At December 31, 2024, the Company owed Hapoalim Bank USD $ 1.39 million. At March 31, 2025, the balance was approximately $ 1.5 million. F- 8 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, 2024 was 7.89 %. 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, 2024 was 9.25 %. At December 31, 2024, the Company owed Bank Leumi USD $ 5.4 million. At March 31, 2025, the Company owed Bank Leumi approximately USD $ 5.4 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 9.5 % per annum and is payable in 36 monthly installments. The balance at December 31, 2024 is $ 251 thousand and at March 31, 2025 was $ 212 thousand. As of March 31, 2025, 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. The Company is actively pursuing options to address its noncompliance. The lenders have not requested early repayment of the loan as of the date when these financial statements were available to be issued. NOTE 9 – OTHER INCOME For the three months ended March 31, 2025, the Company received government relief funds in the amount of approximately NIS 1.7 million or US $ 609 thousand. NOTE 10 – STOCKHOLDERS’ EQUITY PREFERRED STOCK Series A As of March 31, 2025, 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, 2025, there was 1 preferred share designated and no preferred shares outstanding. Series C As of March 31, 2025, 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, 2025, the accrued dividends on the Series C Preferred Stock was $ 219 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 . F- 9 EQUITY INCENTIVE PLAN 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, 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 shares were issued in the three months ended March 31, 2025 and 14,409 shares were issued during the three months ended March 31, 2024. NOTE 11 – LITIGATION The Company was named a defendant in a case involving a former employee who claims he is owed approximately $ 60 thousand in unpaid commissions. This case was settled in February 2024. 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; however, at this stage it is too early to assess the chances of the lawsuit with certainty. 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 thousand in unpaid fees and commissions. The Company believes it has multiple defenses and cross claims against the former consultant and is evaluating its response to the lawsuit, but plans to vigorously defend the suit. NOTE 12 – 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 13 – SUBSEQUENT EVENTS None F- 10