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 2024 Form 10-K and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025, 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 machine vision image processing solutions including 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, technical service and support. Our highly tenured team of professionals has the knowledge and expertise to simplify the integration process for our customers. We deliver practical problem-solving solutions backed by numerous customer references. Our customers include government agencies, healthcare, universities, airports, municipalities and more. 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 Pursuant to the asset sale described in the Notes to the Financial Statements, the assets of one division were sold during the second quarter of 2025. Accordingly, the financial statements have reclassified the related revenues and expenses from both prior periods and the current period into a single line item for “Discontinued Operations” on the face of the financial statements, with further detail provided in the accompanying Notes. The Company’s sales for the six months ended June 30, 2025, and 2024, were $15.8 million and $17.6 million, respectively. The decrease between the six-month periods was attributable to deceleration of projects by customers. The loss from operations for the six months ended June 30, 2025, was $678 thousand, a decrease of $569 thousand compared with the loss in the six months ended June 30, 2024, of $2.27 million. Basic loss per share from continuing operations for the six months ended June 30, 2025, was ($0.00) versus ($0.48) per share for the same period in 2024. Comprehensive loss for the six months ended June 30, 2025 and 2024 was $1.87 million and $3.7 million respectively, the only component to comprehensive loss besides net loss is foreign currency translation. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2025, the Company had cash in the amount of $2.2 million and a working capital deficit of $10.9 million, compared to cash in the amount of $2.3 million, and a working capital deficit of $54.4 million as of December 31, 2024. The Company had stockholders’ deficit attributable to OmniQ stockholders of $11 million and $43.8 million as of June 30, 2025, and December 31, 2024, respectively. This decrease in our stockholders’ deficit was primarily attributable to sale of assets. The Company’s accumulated deficit was $124 million and $124 million as of June 30, 2025, and December 31, 2024. The Company’s operations provided net cash of $6.08 million and used $3.6 million in the six months ended June 30, 2025, and 2024, respectively. The increase in cash provided in operations of approximately $10 million is due to the increase in revenue and decrease in overhead. The Company’s cash used in investing activities was $2.5 million for the six months ended June 30, 2025, compared to cash used in investing activities of $103 thousand for the six months ended June 30, 2024. The Company’s financing activities used $1.7 million of cash during the six months ended June 30, 2025, and used $1.34 million during the six months ended June 30, 2024. 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. Amounts are presented in thousands. For the 6 months ended June 30, Variation In thousands 2025 2024 $ % Revenue $ 15,782 $ 17,587 $ (1,805 ) (10.26 )% Cost of Goods sold 11,6178 13,458 (1,841 ) (13.68 )% Gross Profit 4,164 4,129 35 0.85 % Operating Expenses 4,842 6,396 (1,554 ) (24.3 )% Income (Loss) from operations (678 ) (2,267 ) 1,589 (70.09 )% Net income (loss) from continuing operations 1,691 (4,118 ) 5,809 -141 % Loss from discontinued operations (net of tax) (1,725 ) (1,024 ) (701 ) (68.46 )% Net income (loss) (34 ) (5,142 ) 5,108 (99.34 )% Net Loss per common Share from continuing operations $ (0.00 ) $ (0.20 ) $ 0.00 (100.00 )% Revenues For the six months ended June 30, 2025, and 2024, the Company generated net revenues in the amount of $15.8 million and $17.6 million, respectively. The decrease between the six-month periods was attributable to deceleration of projects by customers. Cost of Goods Sold For the six months ended June 30, 2025, and 2024, the Company recognized a total of $11.6 million and $13.5 million, respectively, of cost of goods sold. For the six months ended June 30, 2025, and 2024, cost of goods sold were 74% and 77% of net revenues, respectively. Operating expenses Total operating expenses for the six months ended June 30, 2025, and 2024 recognized was $4.8 million and $6.4 million, respectively, representing a 24% decrease. The decrease in operating expenses was due primarily to management’s cost savings plan and the elimination of expenses associated wit the legacy business sold in the second quarter of 2025. Research and Development – Research and development expenses for the six months ended June 30, 2025, and 2024 totaled $969 thousand and $856 thousand, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the six months ended June 30, 2025, and 2024 totaled $3.4 million and $4.9 million, respectively, representing a 31% decrease. The decrease was due primarily to management’s cost savings initiatives, including headcount reductions and lower professional-services fees, and the removal of expense associated with the legacy business. Depreciation – Depreciation expenses for the six months ended June 30, 2025, and 2024 totaled $36 thousand and $199 thousand, respectively, representing an 82% decrease. The decrease is directly related to the reduction in fixed assets following the sale of the legacy business. Intangible amortization – Intangible amortization expenses for the six months ended June 30, 2025, and 2024 totaled $468 thousand and $458 thousand, respectively. The modest increase is due the timing of amortization of customer relationships, trade names and other intangible assets. Other income and expenses Interest Expense – Interest expense for the six months ended June 30, 2025, totaled $403 thousand, compared to $538 thousand for the six months ended June 30, 2024. The change in interest expense is attributable to fluctuations in borrowings under the Company’s credit facilities and the retirement of debt associated with the legacy business. Other income and expenses include a gain on debt settlement of $325 thousand recorded in the six months ended June 30, 2025, and $0 in the comparable 2024 period. Discontinued operations – On June 30, 2025, the Company completed the sale of its legacy business. As a result, the assets and liabilities of the legacy business were classified as held for sale and its results of operations for all periods presented have been reported as discontinued operations. For the six months ended June 30, 2025 and 2024, loss from discontinued operations (net of tax) was $1.7 million and $1.0 million, respectively. The increase in loss from discontinued operations reflects transaction-related expenses and a one-time loss on the sale of certain assets. Net income (loss) – For the six months ended June 30, 2025, the Company recorded a net loss of $34 thousand, compared with a net loss of $5.1 million for the six months ended June 30, 2024. The significant improvement in net results was driven by higher margins on continuing operations, lower operating expenses and the gain on debt settlement, partially offset by increased loss from discontinued operations. 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